“Buy Now Pay Later” – What’s the frenzy about this easy credit instrument?
Buy Now Pay Later Schemes seem to be a lucrative credit instrument, but are they really one?
Are you also one of those online shoppers who has been wondering what these payment modes like LazyPay, Amazon Pay Later etc. are? Are you also tempted to try these payment instruments seeing the extra discounts? However, do not exactly understand how they operate… Then fret not! Today we demystify this new credit instrument of Buy Now Pay Later (BNPL) which has been gaining a lot of limelight for easy purchases especially among the millennial.
Putting BNPL in simple mode: Buy now pay later schemes allows one to make a purchase now and then make the payments later in a staggered manner.
So simplifying it further, BNPL is like running an account with any of a fintech player just like some of us have with our nearby kirana shops. We keep on buying from the kirana guy and he keeps on making our entries in a register which he maintains (nowadays they too have gone digital with help of apps like Khatabook). After few days when the amount becomes significant we tend to pay the pending amount at once and clear the dues. In similar manner, once you enrol with any of the Fintech firm providing BNPL facility like Simpl or LazyPay, it provides to buy products through its partners within a time period of maybe 15-30 days, and then allow to settle all bills in a combined manner at the end of the billing cycle. This is interesting, so what’s the catch?
Unlike the kirana guy who is a good guy and doesn’t penalizes you if the amount goes on a little higher side or you make a payment few days later, the BNPL apps start charging exorbitant interest rates and penalty if you delay your payment beyond the payment cycle. Just a small relief is that some of these players allow you to convert the high purchase costs into easy EMI of 3-6 months, but one needs to pay off the debt in this tenure along with the monthly interests which may range between 2.5% to 4% which boils down to annual interest rates of ~30% to 48% which is HUGE!
Some of the prominent fintechs offering BNPL are Amazon Pay, LazyPay, Kisst, Simpl, Slice, ZestMoney etc. Nowadays BNPL option has also been started by e-Commerce websites like Flipkart, BigBaket, Zomato etc. and one can even sign up for multiple credit players simultaneously each offering a different credit limit ranging between 100 to 50,000. These BNPL apps are a viable alternative to shelling out small amounts every now and then and not fretting later on over matching the account entries. However, the spends should be rationalized through these apps because it’s a debt trap with a single shot payment due when bill is generated post 15-30 days of making the purchase.
It would be best to be ready with the repayment amount once the due date approaches for payment cycle, because failing to do so would lead to ballooning debts. Also, one should always go for banks for opting loans because the interest charges are in the range of ~12%-18% per annum which are way less than any credit instrument.
In crux, these BNPL apps are nothing but providers of personal loans repackaged in different ways which overall are expensive and unsecured. Better to avoid until deemed necessary… But it’s good to subscribe us as we provide you information that helps you take wise decisions:
By: Anmol Gupta | Isha Garg