Buy Now Pay Later is a phrase commonly used today to describe the process of purchasing an item for which payment for the item will be made at a future date. The earliest form of Buy Now Pay Later dates back to the 19th Century where it became a norm for consumers to purchase consumer items, for example luxury items like furniture, pianos, farm equipment etc and pay in installments. These items were purchased using this medium as the consumers were unable to pay for these items with cash outright. Today, Buy Now Pay Later (BNPL) programs are becoming more common as retailers’ partner with companies to provide new flexible payment options. The items for BNPL are no longer specifically luxurious in nature, as they can be everyday items. One of the many advantages of BNPL today is the ease of repayment. Though it is often overlooked, it is pertinent to keep in perspective that BNPL is a type of short-term financing. It is a type of loan, as there is an exchange of a product for the payment to be made later in installments. More specifically, the buyer walks away with the product and the seller has made a sale and expects payment in future.
BNPL is often seen as a sales transaction and not short-term financing. This is due to the fact that the transaction is between the buyer and the seller. This medium is different from the traditional method of lending where the buyer approaches a Bank or financial institution for a loan to buy a product. The seller is paid in full and the buyer owes the Bank and spreads the payments over several months. In several cases today, especially with more consumer sales being conducted via digital mediums, in the BNPL transactions credit lines are given by the businesses themselves directly to the consumers and not through Banks or financial institutions.
With the understanding that BNPL transactions are indeed short-term financing, it then stands to reason that these types of transactions and the history of repayments may be reported to the credit bureau agencies. It remains imperative therefore that consumers should stick to the agreed repayment values and timelines as it is a reflection of your credit worthiness, can affect your credit scores and ultimately access to finance. Today, consumers who have a good track record of repayments are sought after by lenders and offered good interest rates as they have shown to be creditworthy.
With the understanding that it remains easier financially to spread the payments over time, resellers always promote attractive offers and BNPL transactions are reported to credit bureau agencies. Before you buy, it’s a good idea to learn more about how these programs work. Here are six things to keep in mind before using a Buy Now Pay Later (BNPL) service:
- Understand the payment options and terms
BNPL companies tend to offer multiple options and terms for your purchase. For example, several BNPL platforms feature the ability to split your cost into payments due at the end of every month. If you make all the payments on time and in full, you may not pay any fees or interest. Some companies also offer longer-term loans, which can range from 3 – 36 months. Depending on the service you use, these loans may include interest charges in addition to the purchase price. Be sure to read up on the payment details and terms before using a Buy Now Pay Later or similar service so you know what to expect.
2. Check for any fees or penalties
Before making your purchase, you’ll want to understand if there are any other fees you may run into. For example, some BNPL companies charge late payment fees. You’ll also want to know if there are penalties for missing a payment or failing to pay completely. Some BNPL companies may send the unpaid debt to collections and ban customers from using their service again. Collections can have a significant impact on your credit health and lower your credit scores. Make sure to keep careful track of your due dates, as you would with any type of loan.
3. Be sure your card will work with the service
Typically, you’ll connect your debit card, credit card or checking account to the BNPL program app or website to complete the transaction. However, not all credit cards may work with your Buy Now Pay Later service of choice. It’s worth confirming ahead of time to avoid any delays with your purchase.
4. Read up on the returns policy
It’s also useful to know the return policy for the product you’re purchasing and the BNPL service you plan to use. Even if you return an item to the merchant where you bought it, you may still have to continue paying your loan until the return is processed. How returns or refunds impact your remaining payments may vary among companies. Much of this information can be found in your loan terms documents and on the company’s FAQ page.
5. Keep your budget in mind
If you decide to use a Buy Now Pay Later program to finance your next purchase, it’s worth taking a few moments to fully understand the terms and conditions, as discussed above. Of course, it’s always important to be mindful of your budget and long-term financial goals. Breaking a lump sum into frequent, smaller payments may make certain purchases seem more affordable. Just make a note not to fall into the trap of overspending. When used responsibly, BNPL can be another tool to help you achieve your financial goals. Similar to BNPL, you may not be charged interest when using a credit card if you pay the balance before the due date. If you pay the minimum, however, you may pay the interest fee.
6. Check your credit report and score at least once a quarter
Checking your credit report and scores at least once every quarter is a good way to ensure that the transactions reported on your credit report are accurate and up to date. It ensures that you have a clean financial record and a proactive means of resolving any errors that may have arisen. Everyone is entitled to one free credit report in a year. Take advantage of this and know your status.
Buy Now, Pay Later plans can be a credible way to spread payment on a large purchase. But before you sign into the platform, be sure to take a good look at the terms and conditions involved. Remember there is no more lending in the dark as credit transactions and updates on repayments are reported to the credit bureau agencies daily. Yours could be one of them.
References
- Nigeria-based CredPal gets $15m to expand its buy now pay later business(https://techcabal.com/2022/03/29/bnpl-credpal-secures-15m/)
- How Buy-Now-Pay-Later is creating huge new financing opportunities in Africa(2021 (https://oradian.com/wp-content/uploads/2021/08/Buy-Now-Pay-Later-in-Africa-an-Oradian-paper-v2.pdf)
- https://en.wikipedia.org/wiki/Buy_now,_pay_later#:~:text=4%20Notes-History,the%20funds%20to%20buy%20outright.