Updated: Oct 6, 2021
Recognise Hoolah, Fave’s FavePay Later or Atome when carting out your purchases? These are some of the common and popular BNPL options for retail transaction. Also known as buy-now- pay-later (BNPL), it is a short-term financing that allows consumers to make purchases and pay for them at a future date, often interest-free.
Generally for BNPL, you only pay a portion for the item upfront and the remaining on a fixed repayment schedule. One can choose to link their debit or credit card for repayments. With debit card repayments being accepted, it encourages young consumers to utilize the platform. Installment is a type of BNPL, especially for big ticket items such as furniture, electronics etc. Zong Jie recently made a purchase of 2 monitors and his current laptop is through BNPL. Though he repaid the items almost immediately after to not chalk up any debts, the idea of paying small amounts through an extended period of time make purchases more affordable. Take for instance a cruise ship offering an “all inclusive” package for 7 nights at $1400 per person. You can choose to either pay upfront or $156 per month for 10 months. The later sound more appealing and manageable because it’s a smaller amount we have to part, making people more willing to part with their money. BNPL is an alternative for big ticket items. The use of BNPL for big ticket items can help reduce credit card expenditure for that month, provided if you have the means to pay it back. However, if you have low cash flow, you might want to think twice before getting that TV. Rebates and cashbacks from BNPL platforms and credit card merchants is another tactic to get you thinking that you might’ve saved more than you bargained for.
Lured into interest free installment, many are falling into the BNPL schemes to have a moment of “relief” of having saved the money for other use. BNPL encourages overspending as consumers do not have to part with a huge sum at one go and can do so through installment. The idea of owning an item before paying it sounds tempting.
Essentially you are buying time for the item through delayed payment. This could lead to impulse spending for short-term needs or things you do not need. What seem to be making the item more ‘affordable’, might just be a double edge sword, encouraging impulse buys and overspending.
As BNPL schemes do not require the use of a credit card for repayment, at the end of the day, small breakdowns can go undetected and ultimately snowball into a huge amount by the end of the month. This makes tracking of expenses and financial planning more difficult unless you diligently jot down every purchases.
BNPL platforms charges a penalty fee or interest for late or missed payments. And if you already have a credit card debt or other debts, late or missed BNPL payments may add more financial pressure into that debt.
It is really important to go back to the basic – to evaluate if the item is a need or a want. If you decide it’s truly a need, go for it. And should you get an item you want, make sure you’re living within your means. Ensure that the purchase is within your budget so at the end of the month, you’re able to repay the loans. Allocate a budget if it’s a want. That way, you’ll know how much you can spend and if you’re able to afford it without sacrificing your needs. I’d say go for BNPL if your purchase fits your budget.
Disclaimer: The information is meant purely for informational purposes and should not be relied upon as financial advice.