Friday, Mar 22 2024
Source/Contribution by : NJ Publications
Few years back, we used to go to nearby stores to buy items like clothing, books, gadgets, and other necessities. However, with the emergence of online marketplaces like Flipkart and Amazon, shopping has become more convenient as we can now access thousands of products at the touch of a button—and at fantastic prices, too! Consumers' purchasing habits are changing, and so are the payment ways. When you shop online at major retailers and stores, you will usually see BNPL payment plans which improve your online shopping experience. BNPL, or buy now pay later, is a new credit scheme that gives consumers the power to purchase a product immediately but pay later in flexible payments.
Although claimed to be a revolution in how people shop, the concept of BNPL is the authentic way of extending credit. For instance, with credit cards, you purchase on credit and pay the credit card bill later. That is also BNPL. Many of you might wonder, how come this new line of credit gained so much success in such a short span?
The exceptional product offering and service to Millenials and genX is just one facet. The main reason behind the success of this credit form is the changing consumer patterns and changes in their payment modes. The pandemic has undoubtedly influenced people's preference for contactless and cashless payment methods. This new type of easy credit has quickly gained popularity and acceptance.
The name Buy Now, Pay Later is so appealing that it is easy to fall for this scheme. This Pay Later Loan is similar to an instant increase in one's credit limit without the hassle of proving credit worthiness or going through tedious documentation. Customers who use the BNPL loan scheme will find the purchasing process extremely simple and painless. In simple words, BNPL triggers consumer spending & motivates people to spend more.
Many people in India still don't know about BNPL schemes, and the ones who do know don't have a complete idea. So, if you don’t know too, you need to know!
BNPL allows the person to make a purchase even if he does not have immediate funds. The customer adds items to a shopping basket and, at checkout, selects the company that offers a BNPL loan. This company then pays the seller on behalf of the customer within 48-72 hours. The customer must repay the loan in instalments over a set period. This repayment is interest-free for the initial days, which makes it the most attractive feature of this service. In simple terms, BNPL is similar to a quick credit facility that allows one to apply for an instant loan without worrying about detailed clauses and terms and conditions. With the help of fintech companies, e-commerce portals promote this credit option. It is an excellent way to encourage consumerism, which improves economic growth and development.
But, is this facility a blessing or a curse? Let's find out.
BNPL - A BOON
Most people regard this new credit facility as a boon, owing to its ease of use. Some of the reasons why this payment plan is so appealing are as follows:
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You get the required amount needed for purchases immediately. BNPL is beneficial for users who do not have a strong credit history and are new as credit borrowers because it allows them to get started without complications. Aside from that, the discipline they demonstrate in repaying the amount contributes to a good credit history record for the future.
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If the purchase is thoughtful, the consumer has the option to pay for the product over the next few months without having to postpone the purchase.
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Repayments are made directly through the bank, requiring only a one-time effort to link the bank account and then automated monthly deductions for repayments. While credit cards have many hidden fees, the BNPL scheme's costs are more transparent.
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BNPL charges a lower interest rate than credit cards. With BNPL, consumers have an interest-free period of 10-30 days to repay the total amount owed without incurring any penalties.
Given the benefits of the BNPL scheme, it is safe to say that, if buy now pay later is used correctly and appropriately, it can become a prominent financial offering in the future.
BNPL - A BANE
Like there are two sides to every coin, BNPL also comes with its drawbacks, which are as follows:
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BNPL credit payment method is very convenient, and people easily sway towards it without fully comprehending how it adds to their fixed monthly obligation and increases their credit load. Some even end up using these cards on petty expenses. People hardly feel the punch of spending, i.e. the thought of money going from their pocket, & as a result, they overspend.
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You can get into trouble if you have multiple BNPL cards and do not use this service carefully. Because the more credit you obtain, the less financially stable you appear, which can hurt your credit score. Therefore always be watchful & limit on the no. of these BNPL credit facilities you avail.
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It is another payment mode that acts as an additional line of credit, increasing people's debt and repayment schedules. Furthermore, if you default or make late payments consistently or more than once on such services, you may face difficulty obtaining a long-term loan which can question your credibility.
In a nutshell, Millennials and Generation Z will become risky borrowers in the future if they do not stick to their budgets. The bottom line is that it all comes down to responsible spending. In the beginning, you may feel you have it all under control, but it is not necessarily the case in the long run. Your financial future depends on how wisely and carefully you manage your finances with this additional line of credit. We can conclude that the BNPL scheme is a fantastic credit payment option, but only if users understand how to manage and repay the outstanding amount in a timely & systematic manner.
