What is BNPL and why is it important?
The buy now pay later (BNPL) is an age-old concept, revived in a trendy way by Fintech companies across the world. To put it simply, it means a customer taking home their purchase but paying for it on a later date.
They are also called as point-of-sale installment loans. The BNPL arrangements have been picking up and becoming an increasingly popular payment option -- especially when e-tailing space is becoming prominent. By using BNPL financing, it can be convenient for consumers, but there are some potential downsides also associated with it.
In BNPL, a customer buys the product and commits to pay for it later, till that time, it is interest free. If he misses that date, he is supposed to pay the interest for the entire period.
What do you need to check while entering a BNPL agreement?
There are four important things that you should consider while you enter a BNPL arrangement. First, like any other financing arrangement, it is important to understand the repayment terms you're agreeing to. Also, it is necessary to understand how your payments will work, which can help you plan for them in your budget. Also, the borrower should keep in mind that while they may be approved for a 0% interest BNPL, that's not always guaranteed. Finally, consider return policies and how BNPL may affect your ability to return something you have purchased.
What are its pros and cons?
BNPL agreements allow consumers to pay for things over time without interest being charged. And it's way easier to get approved for this type of financing even with a low credit score, since they are somewhat sub-prime in nature. These loans don't add to your credit card debt and affect your credit score. On the flip side, getting these loans and paying them off doesn't help you with good credit score mostly. A customer also misses out on any perks, like cash-back or rewards points that credit cards offer.
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