Buy Now, Pay Later (BNPL) - A Complete Overview

A form of short-term financing known as Buy Now, Pay Later (BNPL) enables customers to make purchases and pay for them over time, typically with no interest. Although using BNPL financing can be practical, there are several possible pitfalls to be aware of. The terms and conditions of BNPL programs vary, but they typically provide short-term loans having fixed payments and no interest.

To make the transaction, you can use a BNPL app or your credit card, depending on your selections. Proceed to read on to get further details about buy now, pay later, its top providers, and more aspects of it.

What is Buy Now, Pay Later (BNPL)?

A different kind of payment called "buy now, pay later" (BNPL) enables clients to make purchases of goods and services without having to pay the entire amount upfront. Customers then have the option to finance items right now and pay them back over time in fixed instalments. Businesses that use Stripe's buy now, pay later services have seen an additional 27% increase in sales volume. These payment options give clients the option to finance goods right once and pay them off over time in set payments.

How to use Buy Now, Pay Later?

You can use BNPL to purchase at a participating retailer and select the buy now, pay later option at the cash register, or you can apply for this option while doing online shopping. If accepted, you put down a small amount of money, say 25% of the total purchase price. The remaining balance is then paid off over some time, typically a few weeks or months, in a series of interest-free instalments. Your Debit Card, credit card, or Bank account can automatically be used to deduct payments. In some circumstances, you might also be able to pay via cheque or bank transfer.

The primary distinction between using a credit card and BNPL is that a credit card often levies interest on any balance carried over to the following Billing cycle. Even though certain credit cards have 0% Annual Percentage Rates (APRs), this might only be the case temporarily. You can use your credit line and carry a balance on a credit card indefinitely. BNPL applications typically have a set repayment timeline and no fees or interest.

How does BNPL generate revenue?

Customers and sellers both provide revenue to BNPL. If a consumer utilises the BNPL Facility, suppliers must pay BNPL a fee ranging from 2% to 8% of the purchase price. Given that the seller can enhance conversion or traffic, BNPL participants can also profit by securing their positions through various marketing or promotional expenditures. Customers are charged interest by BNPL players that ranges from 10% to 30% depending on their Credit Score, repayment term, etc. No interest will be applied if the money is paid back on schedule. There are certain clients, though, who might not be able to pay back the money by the deadline, after which a Late Fee is assessed. The BNPL corporation receives more money when late fees are paid.

Eligibility Criteria

You must meet the following requirements to use the Buy Now Pay Later option:

• You have to live in India.
• You need to live in a significant tier 1 or tier 2 city.
• You must be 18+ years old. In some circumstances, the eligibility age cap is 55 years old.
• You must be a paid employee.
• You must own a bank account and all necessary KYC paperwork.

Effects of Buy Now, Pay Later on your credit

Most buy-now-pay-later businesses just conduct a light credit check to determine approval, which has no impact on your credit score. However, other people might perform a hard draw on your Credit Report, which could temporarily lower your score by a few points. Some BNPL loans may appear on your credit reports, affect your credit score, and be reported to one or more of the three major Credit Bureaus. After accepting the BNPL loan, it's critical to make sure you can make the monthly payments. You risk falling behind on your BNPL loan payments, which would negatively affect your credit history, report, and score.

Trends in Buy Now, Pay Later

You can see BNPL as a payment option more frequently now than you did in the early 2000s. BNPL might be a practical choice for buyers in tough economic times when Inflation is high and interest rates are rising. Originally used mainly for clothing and cosmetic items, this type of financing has since expanded to include vacation, pet care, groceries, and gas. Most loans from BNPL fall between Rs. 5,000 to Rs. 1 lakh. Several businesses provide buy-now-pay-later financing for purchases made at partner stores. While BNPL can enable you to make purchases that you otherwise wouldn't be able to at that time, if you're not careful, you risk accumulating more debt than you can manage. This can impact your credit.

Utilising BNPL Apps Has Risks

Before agreeing to a BNPL arrangement, there are various dangers to consider. As BNPL financing is less strictly regulated than credit cards, you should first be aware of the repayment terms to which you consent. Terms can differ significantly. For instance, some businesses could mandate that you pay the remaining sum over a month by making biweekly instalments. Others might give you three, six, or even more months to finish paying for your items.

Finally, think about the return policies of the stores and how using a buy-now, pay-later loan can affect your ability to exchange something you've bought. For instance, a retailer might let a return of the product, but you might not be able to end the buy-now-pay-later agreement until you can show evidence that the return was acknowledged and handled.

Widely used Buy Now Pay Later Apps

Since it has been demonstrated that buy now, pay later companies and programs increase overall sales volume, retailers favour them. There are now more BNPL services that are feasible than ever before; here are the top ones:

PayPal

PayPal is a BNPL lender, albeit it is arguably more recognised as a safe online payment method or as a mobile app for sending money from one person to another. Pay in 4, a service that divides transactions into four periodic instalments, is its flagship loan product. The benefit of using PayPal is that it has roughly 30 million active merchant accounts, making it simple to use without requiring additional procedures like requesting a virtual card number. The average interest rate charged by PayPal is about 24% APR.

Amazon

The e-commerce behemoth provides its consumers with Amazon Pay as an extra service to streamline payments and promote repeat business. In essence, Amazon Pay is a wallet that lets customers add money with any payment method or even gift cards. This money can then be quickly applied to future Amazon purchases.

Many online transactions are made easier thanks to Amazon buy now pay later, which also offers a co-branded credit card in India in partnership with ICICI. For every Amazon purchase made by a Prime member, a Flat 5% reward is offered. When individuals make online purchases, Amazon is typically at the top of the list, encouraging more spending and more Amazon. Customers can use it as a post-paid credit service to access the Amazon Pay Platform.

Flipkart

The Indian e-commerce site Flipkart offers a credit-based payment alternative called Flipkart Pay Later. Customers can make purchases and pay for them later, typically within 14 to 30 days. Customers who might not have the money accessible at the moment of purchase but still wish to make the transaction can benefit significantly from this choice. With Flipkart, buy now pay later, customers can make purchases and pay for them later, either all at once or in instalments, without having to pay upfront. No additional documents are needed to use this service; it is an interest-free payment option and aids in establishing a credit history.

Market Evolution and BNPL

For BNPL providers, profitability is still elusive. For example, compared to other unsecured types of credit (account overdrafts, credit cards, etc.), lenders are exceptionally prompt to charge off non-performing loans. The providers borrow money from various sources to make loans to customers. Virtual credit and debit cards, bank accounts, and other services have been added by BNPL providers, who are now emulating traditional financial institutions to attract repeat business and boost engagement. The objective moves to increase consumer spending and wallet share to obtain a cheap cost of Capital and to produce ongoing loan Receivables and interest.

Conclusion

Buy-now-pay-later loans enable you to make purchases immediately and pay them off over time without incurring interest. Make sure you comprehend the terms and conditions and that you can make all required payments on time if you're considering using a BNPL plan. Consider if the prices are manageable and what consequences there might be if you can't.

Frequently Asked Questions (FAQs)

1. Can you get an instalment loan with buy now, pay later?

A: Yes, BNPL falls under the category of an instalment loan because you pay back your expenses through Equated Monthly Installments (EMIs). After a specific amount of time, interest is applied to the amount you spend, and if you don't pay within the allotted time, a penalty is assessed. The sum must be repaid within a specific repayment period.

2. Does Buy Now, Pay Later include interest?

A: You will indeed need to pay interest on the BNPL. The interest charged is determined by several variables, including the amount spent, the length of the payback period, the credit score, etc. Some businesses offer a grace period where they don't charge you for credit, and you won't have to pay interest on the amount if you can repay it within that time frame.

3. Where can I use the option to "buy now, pay later"?

A: The BNPL option is available both online and offline. You can use the BNPL service to pay immediately when making an online purchase. Similarly, you can utilise the facility to complete a Point of Sale (POS) transaction by scanning the QR code and making the payment. No pin or one-time password will be required of you. You should be aware that the merchant must accept BNPL as a form of payment.

4. What occurs if I fail to pay BNPL?

A: You will accrue a sizable debt if you don't pay the BNPL payment because the corporation will keep adding interest to the amount that needs to be paid. Further delaying the payment will damage your credit score, making it more challenging for you to obtain credit cards or loans in the future. You must pay the money back on schedule to be able to utilise the BNPL facility in the future. Even if you are permitted, the BNPL firm will probably charge an extremely high-interest rate.