Wait … you can buy now and pay later? What’s the catch?

Buy Now Pay Later (BNPL) programs have become more common these days. According to Experian, about 17% of Malaysians have used BNPL in 2022. Of that proportion, 46% of them mentioned that they will use them again.

They do make purchases easier for many, but as with all things, they also come with their drawbacks. Hence, here are the 3 pros and 3 cons of BNPL programs that you should be aware of!

What is BNPL?

Before we dive in, it is important to understand what is BNPL. Formally, it is defined as short-term financing that allows you to purchase and pay for them over time, often at no interest.

You can think of it as purchasing something that is priced at RM1,000 but paying an installment of RM200 for the next five months.

#Pro 1: Able to Afford Multiple Important Things

Have you ever encountered such a situation? You are trying to buy necessities for a place that you are moving in soon but don’t have enough cash to buy a microwave, wok, cooking pan, and electric kettle.

It’s not that you don’t have enough money but you only get your salary the next month. However, these things are essential. What do you do?

You can opt for BNPL programs for all of them, where you only pay a fraction of the total cost. If all of these items cost RM1,200 in total, you can pay only RM200 right now and subsequently for the next 5 months when you get your salary.

It resolves your problem of paying for things that you need now and reduces the stress or worry. The next point illustrates exactly how you can potentially do this!

#Pro 2: Keep Cash for a Rainy Day / Emergency

What if your parents suddenly have to enter the hospital? Or your car got into an accident? These are the type of things that you need to pay for them upfront and in short notice.

BNPL allows you to save and conserve your current cash for a rainy day. Take the example before this. You paid the RM1,200 in full, but you now have to fork out money for these emergencies. You don’t have enough cash at the moment.

In this case, you have a couple of options. You might need to sell some of your valuables (think of the pawn shops), or charge all of the cost on your credit cards. Worse, you might need to borrow and we all know banks don’t lend out loans or credit easily in this case.

BNPL enables you to manage your cashflow better. Paying things gradually is better than paying for something upfront and leaving yourself exposed to the uncertainties of life. Can you imagine paying your house mortgage one-shot? You will not be eating the next day, and for a long time.

credit-card-wallet

credit-card-wallet

#Pro 3: Establishes Credit History

If you make regular and consistent payments for your BNPL purchases, you will be able to establish a solid credit history. Banks love this because you would have shown that you are a good payer.

This is not emphasised enough in today’s world, and not many think about it  – until you try to get a loan for your first house. At this stage, the bank will look at everything financial about you to determine whether you will be able to repay the loan.

A solid credit history will help expedite the process of getting loans, and cut down on the need for the bank to ask for more information from you. This could include requests for more disclosure of your bank accounts or fixed deposits, which you feel could be intrusive.

#Con 1: Tendency to Overspend

You can buy 10 things at once and enjoy them now. Does that sound tempting? BNPL allows you to do that. In Pro #1, it was emphasised that you can buy multiple IMPORTANT things.

The danger here is that BNPL also allows you to overspend on things that you don’t necessarily need. See that branded bag that cost RM3,600? Sure, I will only fork out about RM600 for this month only, and pay installments for the next 5 months.

5 minutes later, you see a camera that you want to buy for RM2,400. Sure, only RM400 for this month only. See the trend? With BNPL, you can enjoy all these things at once but it might blind us in assessing whether we can afford or most importantly, need them in the long-run.

Is this BNPL’s fault? Not at all. Do be aware of your own self-discipline and if you are susceptible to giving in easily to wants.

#Con 2: Late Fees Incurred if Missed Payments

What happens then if you can’t afford them in the long-run? BNPL late payments will pile up. That’s where late charges will come into play here.

Remember when you can’t pay your credit card bills, an agent will call you to pay your debt in installments. But you also get charged probably a 17% interest rate on it. This is the same thing for BNPL late payments too depending on the contract. That’s right, you need to read your contract. Very often zero-interest payment plans do not mean zero-interest late payment penalties.

If you find yourself paying these late charges, it might be time to re-evaluate your long-term spending and tone back on using BNPL.

#Con 3: Could Hurt Credit Score Instead

When you incur late payments for BNPL, your credit history will reflect that also. Like in Pro #3, the banks knowing more about you as a borrower is a double-edged sword.

The risk here is that, that one late payment that you have on your BNPL could overshadow your relatively clean track record. ‘Bad things’ tend to stick out more compared to the ‘good things’.

In this case, sometimes, it might be better to go to the bank with a clean slate rather than one with some late payments on your BNPL.

Conclusion

BNPL are useful products for you, but you would have to consider the pros and cons of it. There are some instances where it could be the difference between life and death. However, as in with all things, BNPL needs to be taken in moderation.

Whenever you find yourself thinking about BNPL, consider whether you can afford it in the long-term.

 

Let us know in the comments below on what you think about BNPL!

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