Do you use “Buy Now Pay Later” schemes? This is what happens if you don’t pay later & nbsp

New Delhi: In recent years, Buy Now Pay Later (BNPL) has become a prominent form of financing. In India, the demand for BNPL has been growing for about 2-3 years, further accelerated by COVID-19. BNPL has emerged as a more convenient payment method that essentially reduces the financial burden on borrowers by offering EMI at no cost.

What is buy now and pay later?

Buy now, pay later is a type of short-term financing. Several companies offer these installment loans at the point of sale. BNPL can be used at a variety of major retailers, which differ from plan to plan. Some credit card companies also offer installment payment arrangements for eligible cardholders. Each buy now, pay later plan is unique to its vendor, but they generally share a few things in common.

These BNPL loans generally require an upfront deposit payment that represents a portion, such as 25%, of the purchase amount. After that, the remaining balance must be settled in installments over a period of a few weeks or months. Some BNPL services set the total number of payments at four, while others allow borrowers to select their own payment schedule based on their financial health. In terms of cost, buy now, pay later, plans often do not charge interest or fees, with the exception of late fees for late payments.

How does the ‘buy now, pay later’ model work?

This concept is not new. In fact, Indians have always been familiar with it in an earlier form of payment known as the Khaata system, in which customers paid the entire bill in one go, usually at the end of the month, rather than paying every time. they made a payment. purchase.

While this system is still common practice in small towns and rural areas, a new twist has been added to the old Khaata concept by digitizing it by these BPNL service providers.

BPNL enables customers to enjoy a hassle-free shopping experience without having to reveal their bank details or go through multiple authentication steps every time they buy something. Users can order food, groceries, medicine, etc., from hyper-local merchants, etc., using the ‘buy now, pay later’ platform and simply pay the collected amount, later.

Credit cards vs BPNL: the best option

While BNPL options apply only to a specific purchase from a specific merchant, credit cards can generally be used anywhere to make many types of purchases. If you have a credit card, you must pay at least the minimum amount due at the end of the month. However, with Buy Now Pay Later, you may have a choice of three, five, or 12 months. This means that while BNPL may offer more flexible terms, credit cards will generally offer more flexible acceptance.

BNPL’s interest rates and fees vary widely. Some options are interest- and fee-free, essentially making them free to consumer financing. This is possible because BNPL providers still make money from commercial fees included in the product price, just as payment networks do from credit card interchange fees. They have a fixed cost or no cost and are very straightforward in showing you how much it will cost.

Longer-term loans offered through BNPL, which can last up to 48 months, generally have an interest rate very similar to a traditional personal loan. However, unlike a loan or credit card, many BNPL providers do not verify credit when approving buyers, making it easier to access financing.

The red flag

Even with all the attractive features and benefits, industry experts say that customers should exercise caution when using the Buy Now Pay Later service.

Although it differs from lender to lender, late fees or penalties are charged as one-time fees are charged, which generally don’t add up – a big difference from credit cards. It is important to note that BNPL is still essentially a loan, and therefore BNPL providers can inform credit bureaus of one’s payment behavior.

Experts say that, as with any other loan, the customer will need to make repayments promptly to maintain a healthy credit score, as most BNPL providers report repayments to credit bureaus.

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