Shopping hasn’t changed with the widening variety and newer products, but the way we do it has certainly changed a lot. Earlier people were buying things directly from each other, then came the currency, then came finance, and now the Buy Now Pay Later concept.

This recent trend of shopping – BUY NOW PAY LATER has triggered millennials to accept as it a new norm. They like to be in control at paying so they were the natural target of this concept.

But it is not as simple as no one likes to do business in loss – not for the long term.

What is Buy Now Pay Later?

Buy Now, Pay Later is an online Finance Assisting approach that helps in providing help to the customers while making online purchases of any product.

It basically divides the customer’s total purchase sum into 3/4 equal installments that can be paid within 2 to 3 months (or maximum 4) which helps in increasing online shopping for those persons who change their shopping plan due to lack of money.

WHY BUY NOW PAY LATER?

BUY NOW PAY LATER  is in current trend as it has many advantages as it reduces money burden on buyers pocket as it is challenging to bear shopping bill total expense in one go but rather, we can pay it in 2 to 4 equal installments.

Another advantage of buy now pay later is that it is generally free of interest rate. The process is also fast, and the respective customers does not have to wait.

HOW BUY NOW PAY LATER WORK?

During online surfing, we can see a BNPL option on a shopping site. If we are a new user then we have to Register in it. This requires exhaustive information that needs to be filled back including name, address, mobile no. , bank information, Date of birth, etc. for Proper verification and Enquires about Credit score (CIBIL).

But credit score doesn’t affect much in it as your transaction will be granted a loan even if your credit score is low (somewhat). The old user whose BNPL a/c is already created can log in it and purchase the product quickly.

For example

Mohan is an accountant in a small firm who is not financially stable as his salary is low. But he wanted to purchase a Washing Machine whose price is about Rs. 20000 and he cannot afford this much amount in one go. So, he came to know about BNPL concept and its charges along with the installment system. He has two options available; one is Credit card and another one is BNPL. He cannot choose a credit card as it has a high-interest rate (42%), as well as several charges, are included in it. So, he opted BNPL system and purchased the Washing Machine in 4 equal installments that was of 5000 each and paid them off in the given time to avoid any late fines or charges.

Is it so easy?

Well NO… as in the above example a product worth Rs 20000 is paid in 4 equal installments of Rs 5000. So how do the financers make money? Is it a loan without interest?

This is the question you need to ask?

No one will give you free credit. So what is the catch here?

First, understand that BNPL is a loan. That is the reason you sign many papers while availing it.

The financer has already asked for a discount on the products from the seller. The seller enters into an agreement for a discount. Now, this discount is what they earn as interest.

For example, in the above case, the financer who extended BNPL to Mohan has already entered a discount agreement from the manufacturer or seller of 10%. So the refrigerator cost is Rs 18000 only. But Mohan pays Rs 20000. So Rs 2000 is what BNPL manufacturer make.

So you will say Buy Now Pay Later concept cost for Mohan is 10%. In a way yes as he lost the 10% discount.

But, the transaction happened in 4 months, so the actual annual cost is 25%!

Should you use a credit card instead of Buy Now Pay Later?

No, credit card debt is costly (36-50%) while BNPL cost is less (14-24%). So you should use Buy Now Pay later when compared to credit cards. But if your Debt History is weak (Low CIBIL), you may go for the credit card as it is already an approved credit for you. New credit or loans may be difficult in such cases.

Should you use a Personal Loan instead of Buy Now Pay Later?

Yes, the personal loan is cheaper but a personal loan is normally issued for 1 year to 5 years. Whereas BNPL is used for small-time loans like 3 to 12 months. Also, personal loans demand more paperwork and checks. So here a BNPL will be preferred.