Is Buy Now Pay Later (BNPL) A Credit Facility Or A Trap? Flipkart-Amazon Sale From 23rd September; Be careful While doing payments from BNPL, otherwise you may get trapped in a debt trap.
Know the BNPL payment terms and conditions.
The countdown has begun for Flipkart’s Big Billion Days (23-30 September) and Amazon’s Great Indian Festival (23 September). Huge discounts will be available on clothes, mobile phones and other electronic items.
Credit card purchases will be eligible for a specific discount. Additionally, many consumers these days use services like Buy Now Pay Later (BNPL). The Buy Now Pay Later (BNPL) business has been successful in winning over many youthful customers. A personal loan or credit card seems less appealing than the BNPL scheme.
This happens because it is said to have no interest at all. The process of availing of this facility is also easy. Apart from this, a payment facility is available in EMI. Your ability to repay the loan without interest is given a moratorium by BNPL companies for a short period of time. However, without financial discipline, its use can be overwhelming.
Due to the emergence of e-commerce and digital payments as well as the quick growth of Fintechs, buy now pay later (BNPL) is a developing loan tech sector in India.
In addition, GenZ consumers, young millennials, and first-time credit borrowers, who are typically overlooked or underserved by traditional banks, choose BNPL since it is so easy to acquire credit but BNPL service must be used with precautions otherwise it will lead to a debt trap when a person is unable to pay the amount.
Here we are telling you about the things you should keep in mind before taking advantage of BNPL and what problems you may have to face if you do not pay the money on time.
What is Buy Now Pay Later Service?
BNPL allows customers to make EMI payments. It claims a 0% interest rate. A customer while making an online purchase may decide to postpone the purchase due to a paucity of funds, but may purchase the product from BNPL without paying the customer immediately. He doesn’t need to delay making the purchase.
After deducting a small transaction charge, BNPL pays the vendor on the client’s behalf. You must pay back the money within a given time frame when the borrower makes a payment on your behalf. Either a lump amount payment or an interest-free EMI may be made. This kind of service is provided by Flipkart, Amazon, and Paytm.
How BNPL works
The operational concept and the terms and conditions are the same for all BNPL service providers. First-time users of the BNPL facility must complete the Know Your Customer (KYC) procedures on the platform of the service provider.
Then, customers must make a purchase utilizing the Buy Now, Pay Later option, pay a small portion of the total amount up front, and the balance is then removed over a period of time in instalments.
Credit cards, debit cards, checks, bank transfers, or payments made directly from a bank account are all acceptable methods of repayment. BNPL can be used to pay for a variety of goods and services, including electronics, clothing, meal delivery, travel arrangements, groceries, and other expenditures.
Different platforms providing BNPL facility:
- Paytm Postpaid
- Amazon Pay Later
- Flipkart Pay Later
Buy Now, Pay Later (BNPL): A Credit Facility Or A Trap?
“Buy Now, Pay Later,” or BNPL, has become popular among millions of young consumers who are short on cash and don’t have a standard credit card. In India, a number of online retailers and financial institutions provide short-term financing options, making it a practical substitute for credit cards.
Whether BNPL service is a facility or a trap depends on how you use it. To take full advantage of BNPL, financial discipline is essential, but very few young buyers have that much financial discipline.
With the BNPL facility, many people usually buy more than they can afford. Due to this many of them are unable to make payments later and fall into debt traps. This is almost the same as using a credit card.
If the customer does not make the payment of BNPL on time, then BNPL companies report it to the credit score agencies and your credit score gets spoiled. The next loan may be more challenging to obtain as a result. There is also a penalty for not paying the money on time.
On the other hand, BNPL makes buying easy if the service is used properly. There is no need to pay a lump sum payment at the time of purchase. You can easily pay in instalments after purchasing the product. If you are getting a product at a discount and you do not have money at that time, then BNPL can be useful.
Use the service only during the most challenging conditions. According to Pankaj Mathpal, personal finance expert and founder and CEO of Optima Money Managers, such offers potentially lead to overspending.
When people spend more than they can afford, it becomes challenging for them to pay back the debt. Therefore, unless absolutely required, credit expenditures must be avoided.
How big is the BNPL market in India?
By 2024, Goldman Sachs projects that the Indian e-commerce market would be worth $99 billion. According to Worldpay’s Global Payments Report, BNPL will grow from its present level of 3% to 9% by 2024.
BNPL will rise together with the e-commerce or online buying sector. Lazy Pay, Simple, Zest Money, Amazon Pay Later, Slice, and Paytm Postpaid are some of the companies that provide BNPL services in India. Redseer Consulting’s analysis states that the BNPL segment is expanding by 65% YoY. By 2025, it is anticipated to increase to $40 billion.