The latest trend in payments is the Buy Now Pay Later (BNPL) scheme which has become a thing lately for youngsters and especially during festive season, people tend to use it beyond their control limit. Many online shops and retailers now provide BNPL rewards programmes and 'buy now, pay later' EMI options. But do you understand what the BNPL scheme is and how it operates? Let's deep dive to know more about it.
BNPL is a payment option that allows you to buy something without having to pay for it right away. You may pay the amount at a later date during an interest-free period. The BNPL service provider will settle the bill with the merchant on your behalf at the time of purchase. This method of credit payment is gaining popularity among the cash-strapped younger generation, who may not have access to a credit card. They can borrow credit for small-ticket purchases using various BNPL apps.
For example, suppose you spend Rs 40,000 on a brand-new mobile phone. You have Rs 10,000 to pay as a lump sum, and the repayment period is six months; the rest is Rs 30,000, with an EMI of Rs 5,000.
How does it function?
Many companies and apps provide the buy now, pay later service, and each has its own set of terms and conditions. However, the majority of them follow a similar procedure, which is discussed further below.
When can you choose for BNPL?
Holiday Expenses
If you spend a lot, you may want to consider BNPL. It could save you from unnecessary financial stress.
Required Purchase
If the product you want to buy is urgently needed but you lack the necessary funds, you can use BNPL.
No current loan
If you have no debt and your current loan repayment commitment is manageable, you may think of opting for BNPL. Furthermore, your short- to medium-term cash flow should be sufficient to absorb the additional burden of EMIs without affecting your monthly expenses.
Here’s why you should not choose BNPL
Required Money
If you can pay the full amount at the time of purchase, you should avoid BNPL. It's worth noting that the borrowed funds must be repaid.
Non-Priority Spendings
Prioritisation in shopping is essential; otherwise, your expenses may spiral out of control, leaving you financially vulnerable. If you can postpone or wait, it's best not to rush into purchasing goods from BNPL.
No checks on cash flows
When considering short-term borrowing, cash flow management is critical in the short to mid-term. If you are unsure about your cash flow in the coming months, it is best to avoid taking out BNPL loans.
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