Buy now and pay later has become a popular way to pay for purchases stated Bahaa Abdul Hussein. A question that arises is can it be used for big ticket items? If so, then would it remain a wise choice or would it push shoppers into a debt trap. We look at the answers to these questions.

How BNPL works

BNPL is Buy now and pay later. It is a customer-friendly payment option that allows shoppers to buy a product without having to pay for it immediately. They can pay for it later thereby allowing them convenience in the purchase process. Retailers will however get paid upfront and do not have to wait until the customer pays. This makes the process win-win for both customers and retailers. Let’s see how the process works:

  • A customer makes a purchase. At the time of payment, they need to select the BNPL option.
  • The customer can then choose whether they would pay in full later or in interest-free installments. In some cases, a down payment may be required.
  • The BNPL option doesn’t charge any fee or interest from the shoppers. However, the seller needs to pay a fee, which may be 2 to 8% of the purchase cost. For sellers, it is beneficial because they get their payment upfront. It also helps in increased conversions and higher sales.

Can BNPL become a debt trap?

When BNPL is used for small purchases, it becomes a very convenient payment option for customers. They can pay later without any interest, making it more convenient than credit cards. A key issue here is on repayment. It is very important that they pay on time as per the agreed deadlines. Failure to do will incur interest and late fees/penalties. This amount can be a sizable one.

When used for big ticket purchases, BNPL allows shoppers to get an expensive product immediately even though they don’t have the money to pay it. Before purchasing, they need to plan how they would make the repayment. Without such a plan, BNPL can become a debt trap. Failure to pay would lead to huge costs that can hurt the pockets of the buyers.

Conclusion

Like any other credit system, BNPL has its pros and cons. The biggest benefit is that it charges no interest if payment is done as per agreed timelines. Defaulting can be costly and larger the purchase value, higher is the penalty for late payment. When used for big ticket purchases, customers need to buy responsibly. When they buy beyond their means, it can become a debt trap.

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