BNLP (Buy Now, Pay Later) apps have skyrocketed in popularity over the years. However, if you already have a problem with spending and difficulty making repayments, then the ease in which you can access a BNLP app could make a bad situation worse.
- Different BNPL (Buy Now, Pay Layer) apps have different repayment options, terms, and conditions.
- Due to their low eligibility criteria and ease of approval, BNLP apps have become easier for vulnerable people to make impulse purchases on inessential products and services.
- If a lender views your BNLP usage and discovers several late or missing repayments, they may use that information to deny your loan request, thereby affecting your credit score.
- Just like any unsecured or personal loan, your best bet is to wait until you can afford the product or service in question, instead of making the purchase and then hoping you will have enough money to pay it off later.
- If you need help with your credit card debt and BNLP apps, contact Debt Fix for a free consultation today.
Buy Now Pay Later (BNPL) apps like Afterpay, Zip, and Klarna are a quick and easy way to buy something you need or want and pay it off in stages on a weekly, fortnightly, or monthly basis. There is typically no interest when you make a BNPL purchase and, as long as you make your repayments on time, you won’t pay extra in late fees.
Different BNPL apps have different repayment options, terms, and conditions. These factors determine your maximum spending limit, how often you must submit a repayment, what associated fees may apply to you, and what penalties may apply if you miss a repayment or make a late payment.
For example, Afterpay has a maximum account limit of $2,000 and lets you split up a single purchase into four equal interest-free fortnightly payments. Payright, on the other hand, lets you make purchases of up to $20,000 and make fortnightly or monthly interest-free instalment payments, with a maximum loan period of 36 months. The average late fee is around $5 or more depending on the app.
There are many reasons why BNPL apps have skyrocketed in popularity over the years. They give you a means to buy the things you need or want on the spot and worry about the money side of things later. Oh sure, you do pay 25 percent upfront on most purchases, but that’s pennies compared to what you would otherwise pay, so the prospect of dropping a bit of coin now and dealing with the rest later is an attractive option. Furthermore, since there is no interest on a BNPL purchase, this makes it come across as a low-risk endeavour. As you will soon find out, though, this could not be further from the truth.
And lastly, the application process for a BNPL transaction is much quicker, smoother, and requires filling out less text fields on your smartphone than you would for a traditional credit cardHome . All you need to do is download the app, create an account, confirm some basic personal and financial info, and wait a few seconds to be notified of your approval. On top of this, the BNPL option is popping up everywhere, pretty much anywhere that accepts credit cards, from online and physical retailers to other service providers such as electricians, plumbers, mechanics, and builders. You can even pay off a home renovation with a BNPL plan.
The Bad, And the Ugly
Despite the many benefits that BNPL apps have to offer, they have some serious drawbacks. The most obvious one is that, due to their low eligibility criteria and ease of approval, it has become easier for vulnerable people to make impulse purchases on inessential products and services. There is evidence to back this up, too. 59 percent of recipients say that they purchased an unnecessary item, one that they otherwise could not afford, according to a ‘Buy Now, Payer Later Statistics and User Habits’ report from Chicago research firm, C+R Research.
As a result, there is a risk that those who already struggle with impulse buying, and who are juggling one or more unsecured debts, could fall further into debt due to the appeal and attractiveness of the BNPL option. To support this claim, a 2020 report by ASIC revealed that one in five consumers were missing payments, and missed payment fee revenue for BNPL services totalled over $43 million, a growth of 38 percent compared to the last financial year. While recent industry regulation has tempered these numbers a bit, it will take a while for these changes to take effect. The onslaught of late fees can further exacerbate these issues, as well as undermine the reason for choosing the BNPL option in the first place; that being, to enjoy a new purchase now and pay it off later, without fear of paying more than the value of the product or service itself.
In addition, the use of BNPL services can negatively impact your credit score. If a lender views your BNPL usage and discovers several late or missing repayments, they may use that information to deny your loan request, thereby affecting your credit score. Lastly, BNPL return policies can differ between merchants and BNPL service providers, which may require you to contact both parties – and provide proof of return – before you receive a partial or full refund.
When in Doubt, Avoid
On paper, the idea behind buy now, pay later sounds great. But, if you already have a problem with spending and difficulty making repayments, then the ease in which you can access a BNPL app could make a bad situation worse.
With a BNPL plan, you could be lulled into a false sense of security. You may think you can afford to buy a product or service and pay it off later. But in fact, you may not have enough money coming in right now – at least, not at this stage of your life – to make those repayments on time. The result? Late fees and a strike to your credit score, affecting your day-to-day finances and making it harder to get approved for a loan.
Just like any unsecured or personal loan, your best bet is to wait. Wait until you can afford the product or service in question, instead of making the purchase and then hoping you will have enough money to pay it off later. This will help you stay in control of your finances and avoid the crushing, snowballing effect of debt.