Buy Now, Pain Later?

With the increase in people opting for online shopping in the past few years, there was a new way of payment that came about – Buy Now, Pay Later.

The ‘buy now, pay later‘ (BNPL) is a new way of payment in the digital era. It is a payment option offered by digital lending firms, well-known banks and various e-commerce companies.

For further understanding, let’s take an example – you want to buy a new smartphone. The one you have your eye on costs about ₹50,000. You’re thinking of using your savings or credit cards or EMI to finance your purchase. Then you find out about the BNPL option to make your phone purchase. With BNPL, you can buy your smartphone immediately and pay the money back at a later date or in several small instalments over the course of the next few months with seemingly little to no interest.

Buy now, pay later schemes claim to be aimed towards millennials and Gen Z to increase their spending power, and to enable them to have more cash in hand. Starting with e-commerce, it has now expanded to include food delivery, travel booking, groceries and other essentials. With the pandemic and the lockdown, there has been an increase in online shopping. Some digital lending firms have seen a 140% increase in demand for BNPL as compared to pre-covid levels (Source: Business Line). It is the fastest growing online payment method in e-commerce. It is estimated that BNPL will capture 9% of the total e-commerce market share in India by 2024 (Source: Global Payments Report).

So who is taking this BNPL option?

The main set of people opting for buy now, pay later are youngsters between 18-34 years of age. Most the people using this facility don’t have a credit card or are not eligible for one. As buy now, pay later is a form of short term credit, there is no hassle of paperwork or any red tape that you need to go through to avail it. That’s one definite reason for its popularity. Since the pandemic and subsequent lockdown, there has been a 60-70% increase in demand for this payment method (Source: The Hindu Business Line).

However, there’s more to this story

One of the main attractions of this scheme is that you don’t need to have any immediate cash or savings to spend on what you like. Does this mean, you don’t have to pay for your purchases, ever? No.

Once you have made a purchase using BNPL, you have to pay back the borrowed amount within a certain time period. If you are unable to pay back, there will be an interest levied. If you’re late, there will also be a late penalty that needs to be paid to the lender. The interest rate charged by the firms offering BNPL are as high as 36% p.a (Source: Money Control).

Moreover, it is also being advertised heavily by the various e-commerce portals as the preferred payment option. The lure of not having to pay immediately the full amount leads to impulsive buying. It also leads to buying more than what you needed or wanted. This is leading to more mindless consumption, eventually building the financial pressure to payback.

So is BNPL as good as it seems? Or is it a debt trap?

The psychological and financial side-effects of Buy Now, Pay Later schemes are not be discounted. Anyone who says it is not a debt is trying to sugar coat things.

Imagine, buying something after paying fully for it. It will lead to peace of mind and will not pinch you months after you have bought the thing. Buyer’s remorse is real. BNPL can aggravate that remorse even more.

Yes, at times it can act as a tool to purchase something you need urgently. However, if BNPL becomes a habit, with each such purchase, it can take you miles away from your dreams of financial freedom.

It is important to be aware of the complete terms of such schemes before availing them. Don’t let the Buy Now, Pay Later schemes become Buy Now, Pain Later for you.

Opt for a smarter mode of paying for the things you buy.

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