Introduction

One of the most widely used payment methods is purchase now, pay later. In the US, over half of consumers have used a buy now, pay later service, and in Australia, buy now, pay later providers account for about 10% of all online transactions. In India and the UK, it was the payment method with the fastest rate of growth in 2020. By 2025, researchers predict that these services will make up 12% of all e-commerce spending on tangible products worldwide.

What is Buy Now, Pay Later?

One sort of short-term financing that enables customers to make purchases and pay for them over time is buy now, pay later (BNPL). Another popular name for BNPL is an interest-free point-of-sale (POS) installment loan. Although using BNPL financing can be practical, there are a few possible pitfalls to be aware of. Customers can use third-party apps or BNPL services from both traditional and online merchants to make purchases.

How do services like "Buy Now, Pay Later" operate?

Along with credit cards and other payment options, buy now, pay later services are frequently offered as a payment flow alternative. Customers are taken to the provider's website or application to register or log in after making a single purchase and choosing a buy now, pay later option on the payment form. Consumers have the option to accept the repayment plan's terms, usually choosing between bi-weekly or monthly installments, and proceed with the purchase.

Businesses get paid in full upfront (without any costs) after the purchase is finished. When they pay on time, customers sometimes avoid paying interest or other costs by paying their installments directly to the buy now, pay later supplier.

How is money made from buy now, pay later services?

Purchase now, pay later services make money by charging clients and companies fees. Depending on the supplier, business costs typically consist of a one-time setup fee and a predetermined fee for every transaction. Interest rates and late fines for nonpayment are typically associated with customer fees.

Benefits of Buy Now, Pay Later

As previously stated, buy-now-pay-later financing arrangements let customers spread out their payments without incurring interest. And even if you have been turned down for other loan alternatives because of a low credit score or no credit history, you can still be authorized for this financing.

While BNPL loans increase your personal loan debt, they do not increase your credit card debt. Unless you don't make payments, they typically don't impact your credit score.

Advantages:

Easy method of paying for products over time

Interest rates are sometimes lower than those of credit cards or nonexistent.

High credit scores or good credit are not required to be eligible.

Quick approval

Drawbacks of Buy Now, Pay Later

There are certain drawbacks to BNPL. Paying off a BNPL loan, for example, usually won't help you develop and create good credit. Additionally, you lose out on any benefits that credit cards provide, such as rewards points or cash-back.

Additionally, it can be difficult to return an item you purchased through BNPL. Although there can be a wait before the retailer notifies the BNPL lender of the refund, you should receive your money back. In the interim, you might need to continue making payments. If you don't, the payment may be reported as missing or late, which could lower your credit score and result in further costs.

Disadvantages:

It can be challenging to track payments.

Late or missed payments might harm your credit score and incur late fees.

No cash back or points were received for the purchases.

Even if an item is returned, payments may still be made.

Qualifications for the Buy Now, Pay Later program

You must meet the following requirements to be eligible for the Buy Now Pay Later option:

You have to live in India.

You have to live in one of the big tier 1 or tier 2 cities.

You have to be older than eighteen. In certain situations, the maximum eligibility age may be as high as 55.

You have to be an employee with a salary.

You need to have a bank account and all of your KYC paperwork ready.

FAQs

1. What is required for a Buy Now, Pay Later (BNPL) plan in terms of credit score?

Enrolling in a BNPL plan does not require a specific credit score. When you apply, some service providers won't even look up your credit score or credit records. To determine your creditworthiness, some people perform a mild credit check.

2. What Are the BNPL Loan Dollar Limits?

Additionally, that differs from retailer to retailer and from provider to provider. Generally speaking, it might be anywhere between hundreds and thousands of dollars. Some plans have a pre-purchase limit in addition to an overall limit. Before you go to the store to get a costly item, it is worthwhile to check that out.

3. What Is a BNPL Loan's Interest Rate?

As long as you pay your bills on time, the majority of plans have no interest. But if you don't, interest rates might go as high as 36%. The Consumer Financial Protection Bureau states that the programs may also impose late fees, which are usually $7 or $8.

4. What occurs if I fail to make BNPL payments?

You will accrue a substantial amount of debt if you fail to pay the BNPL amount since the business will keep charging interest on the amount owed. Your credit score will be lowered if you continue to miss payments, which will make it more difficult for you to get credit cards or loans in the future. If you fail to make the required payments on time, you will not be permitted to use the BNPL facility in the future. Even if you are permitted, the BNPL firm will probably charge you an extremely high interest rate.