Buy Now Pay Later (BNPL) is a form of credit which allows s a customer to make a purchase with borrowed money, and then pay it back, usually in installments, in the future. The first of these payments is made at checkout, when you opt to use the BNPL service.
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Like payday loans, BNPL are typically short-term loans, and are used more and more frequently for regular purchases. The average BNPL purchase is $200, with users usually option monthly repayments, rather than paying a chunk back every two weeks.
Repayments are usually topped by interest, but many BNPL providers will offer 0% interest, especially as competition rises and large platforms, such as Paypal and Amazon join the BNPL bandwagon. They use ‘Buy In Four’ and ‘Affirm’ respectively.
BNPL should only be used if you need the funds, and when you know that you will be able to meet repayments. Failing to repay your debts can damage your credit score and lead to your future loan applications being rejected.
Why Is Buy Now Pay Later Becoming More Popular?
We saw a surge in online spending over the Covid-19 pandemic as shops emptied out and customers took to the internet. In 2021, global e-commerce rose to almost $27 trillion, demonstrating how much consumers rely on online spending. BNPL is a tool to boost this even further, making spending more accessible.
Banks and lenders are beginning to get involved to compete with fintech competitors, and huge companies like PayPal are introducing BNPL schemes. Most recently, Santender is launching its own BNPL app called Zinia in 2022. Goldman Sachs agreed to buy GreenSky for over $2 billion, trying to edge into the BNPL market. BNPL is seemingly everywhere.
While this also wards off fintech competitors, BNPL also presents a new opportunity of profit for banks and lenders. This would be attained through interest payments on BNPL lending.
Why Shouldn’t I Use BNPL?
BNPL – like a payday loan – creates debt that you then need to pay off. Failing to repay your debts as you’ve agreed can harm your credit record, which will make it difficult for you to borrow in the future. This can apply to a loan, a mortgage, or something as mundane as a phone contract.
Similarly, BNPL loans are often accompanied with interest payments. While these can be low, there is still usually a cost of borrowing. Therefore, unless you really need the loan, you should avoid taking it out.
What Else Could I Do?
If you really need money now, there are plenty of options. Stay calm, and consider them.
These are used by 12million Americans each year, and are popular because of their speed. You could receive your funds within one business day of applying, and it is easy to get your hands on one, especially if you apply through a broker. However, keep in mind these are expensive loans.
These are essentially early paychecks provided by an employer. If you have a part-time job while you are a student, you could be entitled to one. If you need cash, ask your employer what work-based support can be provided to you.
Loan From A Loved One
Borrowing from friends and family offers flexible and typically a cheap means of borrowing. These can harm relationships, so you should be honest with your loved one about how and when you plan on repaying them. They are popular because they are typically more flexible than your average, high-street loan.