Is Buy Now Pay Later the safe option for you? 5 things to consider

The rise of ‘Buy Now Pay Later’ (BNPL) services has revolutionized the way consumers make purchases, offering the allure of immediate gratification without upfront costs. Recent data indicates a significant increase in BNPL’s share of e-commerce transactions globally, rising from 0.4% in 2016 to 1.6% in 2019 and reaching 3% in 2021. This trend has propelled the global BNPL market size, which is now projected to reach an impressive $596.7 billion by 2026. In India, the BNPL sector is moving at 65% YOY growth and is expected to attain a valuation of $40 billion by 2025. 

As the utilization of BNPL options continues to expand, businesses are striving to gain a competitive edge in the market. However, concerns have been raised regarding the affordability of these payment methods and the potential presence of undisclosed terms or fees. To help you make an informed decision about BNPL, this article highlights the five most important factors that should be taken into account. But before delving into that, let’s briefly understand the concept of BNPL.

What Is ‘Buy Now Pay Later’ (BNPL)?

‘Buy Now Pay Later’ (BNPL) is a type of short-term financing that allows customers to make purchases and spread out the payments over a period, usually without any interest charges. Let’s examine this concept from the customer’s point of view.

When shopping online, customers can browse products and add them to their virtual shopping cart. Once they are ready to complete their purchase, they click on the ‘checkout’ button. Apart from the traditional payment methods like credit cards, they now have the option to choose ‘Buy Now Pay Later’, which provides them with greater flexibility in their buying experience.

5 Things To Consider Before Choosing BNPL

Although using the BNPL payment method can be convenient, there are several possible pitfalls to be aware of. Let’s check them one by one:

Budget and Affordability

Before opting for a BNPL loan, assess your financial situation thoroughly. Consider your existing financial obligations, including bills, rent/mortgage, and other debts and evaluate if you can comfortably manage the loan repayments without straining your budget. It’s crucial to ensure that adding a BNPL loan payment will not put excessive pressure on your finances.

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Impact On Credit Score

Timely repayments of BNPL loans can positively impact your credit score, showcasing your responsible borrowing behavior. However, it’s important to note that missed or delayed payments can adversely affect your creditworthiness.

Additionally, it’s vital to consider how taking a BNPL loan might impact your future borrowing needs. Your creditworthiness plays a significant role in obtaining favorable terms and interest rates for future loans, so it’s crucial to make informed decisions that align with your financial goals.

Hidden Charges and Terms

It is essential to thoroughly review the terms and conditions when entering a BNPL loan agreement to prevent unexpected circumstances. It is crucial to closely examine details such as early repayment penalties, default fees, and other potential expenses associated with the loan, as hidden charges or terms can have significant consequences. If there are any uncertainties, it is recommended to seek professional guidance or address any doubts to guarantee a comprehensive understanding of the agreement.

Responsible Borrowing

In the case of BNPL loans, it is crucial to exercise responsible borrowing practices. Limit their usage to necessary and planned purchases, steering clear of the temptation to overspend or accumulate unnecessary debt. Weigh the loan’s impact on your long-term financial goals and overall well-being before making the decision. Doing so lets you make informed decisions that align with your financial stability and ensure a healthier financial future.

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Evaluate Alternate Options

It is advisable to consider multiple ways of financing before deciding on one. Take the time to assess conventional credit alternatives, your savings, and various payment arrangements to identify the option that best fits your requirements. By carefully evaluating all the available choices, you can make a knowledgeable decision that aligns with your financial circumstances. This thorough examination guarantees that you select the most appropriate financing method and lets you steer clear of any possible disadvantages linked to BNPL loans.

Conclusion

BNPL loans have gained significant popularity in recent years due to their convenience and accessibility. While they offer immediate gratification and flexibility in payments, consumers must exercise caution and understand the potential risks of accumulating debt and incurring high-interest charges to safeguard their shopping experience.

This column has been written by Rishabh Goel, Co-Founder & CEO of Credgenics

Disclaimer: The views expressed in this article are that of the respective authors. The facts and opinions expressed here do not reflect the views of www.financialexpress.com.