Understanding Buy Now Pay Later and How It Works
• July 27, 2024
Buy now pay later is a customer-friendly, short-term loan option. It lets you buy goods and make payments as instalments over time. Let’s find out why BNPL is so appealing and how it works.
Buy now pay later, or BNPL is a payment method where you buy products without paying for them right away. When you choose this mode of payment, the lender pays on your behalf; you repay this amount as monthly instalments over a period. What’s attractive about this is the loan is interest-free as long as you repay the amount on time. It’s also worth noting that delaying your repayment will affect your credit score.
How to Use Buy Now Pay Later?
When you make an online purchase, you will notice the option to buy now and pay later. When you choose this option, the lender will offer you an interest-free BNPL loan for a short period without additional charges. At the time of purchase, you can choose to make a downpayment and have the rest repaid as instalments over a period of your choosing.
Advantages of Buy Now and Pay Later
- You can make easy monthly payments on big purchases without interest.
- The payment method is transparent and straightforward.
- You have the flexibility to choose the repayment period
- BNPL lenders sometimes make a soft credit check. Hence, your credit score is unaffected.
- The transactions are safe and secured.
How is BNPL Different from Credit Cards?
Although the functionality of pay later is similar to that of credit cards, you need to be aware of the differences.
BNPL | Credit Card |
| Interest-free EMIs for the repayment period | Interest is charged on overdue balances and EMI conversions |
| Approvals are easier | Approvals depend on credit history, income, and other factors |
| Individuals with low or no credit history can make use of BNPL | Credit history is a critical factor in receiving credit cards |
| Monthly EMIs must be paid on the scheduled dates | Minimum due amount can be paid before the due date |
| Use is limited it specific merchants or online platforms that have tied up with the lender | Widely accepted domestically and internationally for online and offline purchases |
| There are no hidden fees, like annual or joining fees | There are annual fees and some transactional fees |
Does Paying Later Affect My Credit Score?
Most BNPL lenders perform a soft credit check at the approval stage. As long as you pay on the specified dates, your credit score is unaffected. However, if you fail to make payments timely, your credit score is bound to fall. It could also lead to the lender making a hard credit check.
Who is BNPL for?
You are the ideal customer for buy now and pay later if
- You have a low or no credit history
- You want to make big purchases on an interest-free instalment plan
- You shop at merchant stores that have the option to pay later
Conclusion
Buy now pay later can help you make purchases and pay off the amount as weekly or monthly instalments per your choosing. It is a convenient, safe, and transparent way to make payments. If you are someone with little to no credit score, BNPL can be a good option to manage big payments as bearable monthly EMIs.
It’s worth remembering that although these options let you pay later, they are still a form of loan. So, use them carefully and responsibly to avoid getting into financial pitfalls. Paying the monthly instalments within the specified time will protect you from paying interest and having your credit score negatively impacted.
The bottom line? When used responsibly, buy now and pay later is a good option to make convenient instalment payments for big purchases.
Frequently Asked Questions
What is buy now pay later?
Is BNPL a type of loan?
Does buy now pay later affect my credit score?
Who is BNPL for?
Do I need to make a downpayment while opting to pay later?