#adulting: Buy Now, Pay Later

 

Buy Now, Pay Later (BNPL) is a simple concept that spreads payment for an item over time. Instead of paying the full amount during checkout, we choose the BNPL service  which pays the merchant on our behalf. By taking this action, we agree to pay the BNPL service over a period of time. Effectively, we split the payment into smaller amounts over an agreed upon time frame.

However, this doesn’t mean the purchase was cheaper! It just means we have a longer period of time to pay off the full cost. As we split payments into interest-free instalments, we worry less about affordability. We may then feel tempted or justified to spend more because we can afford it “now”.  Debt can happen as we don’t think about whether we can afford to pay it all back later. 

Wondering if it’s time to jump on the BNPL trend? Here are some considerations to help you decide between BNPL options and alternatives:

Buy Now Pay Later Versus Credit Cards

Both BNPL and credit cards are essentially debts that allow for deferred payment. Generally, BNPL is an instalment plan where payments are stretched out, while credit cards combine all expenses in a given period with the total payment due in one swoop.

BNPL products are similar to the traditional “Instalment Payment Plan” (IPP) offered by credit cards. The difference is that IPPs are usually used for more expensive items such as furniture or electrical appliances.  They also have a longer instalment period of 12-24 months, while BNPL is usually between 3-6 months.

For credit cards, you need a good credit score and a minimum income. BNPL, on the other hand, is not dependent on credit score.  It also is easy to obtain in most countries. To learn more about the importance of your credit score, read this article!

Buy Now Pay Later Versus Cash

The beauty of paying in cash is that it serves as a visual reminder of how much we spend. It provides a reality check of how much cash goes out and how much comes in from month to month. Paying the full amount at the time of purchase also removes the mental burden of having to think about later payments. However, with the current pandemic situation, most merchants have rejected the use of cash.

And for those of us who are not in the habit of keeping receipts or tracking expenses, we may forget what we spent with cash. With BNPL, however, we will be reminded of what we have spent on when payments are due!

BNPL merchants also often entice us with incentives to sign up for their services. Although we can benefit from such rewards, the easy access and ease of use can lead us to build a habit of overspending.

Buy Now Pay Later Versus Not Spending At All

Now that BNPL has made it easier for us to afford purchases, it might be much harder to say “no.” Therefore, it is important to look at our current spending habits and evaluate whether BNPL is beneficial to us.

Consider how and when we spend money – if we typically watch our spending and pay responsibly on time, BNPL can help us increase our liquidity while automatically tracking our purchases. However, if we usually overspend and are easily tempted to go on shopping sprees, BNPL may be bad company!

We hope this article has been able to provide some thoughts on using BNPL products. If you are thinking of accessing BNPL to pay for your online purchases, read this to make sure it’s not an impulse buy!