If you’ve shopped online recently, you may have noticed new payment options at checkout, including buy-now-pay-later (BNPL) credit, for purchases like clothing, electronics, furniture and exercise equipment.
BNPL, which has grown in popularity during the pandemic, is a deferred payment option that allows you to purchase items with little to no money upfront, followed by instalment payments.
Although the features of BNPL sound similar to the instalment plans of traditional credit cards, there are distinct differences. It’s essential to understand the benefits and risks that come with BNPL before making your next purchase.
Eligible products range from less than RM100 to a few thousand ringgit. Users can select the BNPL option during checkout online or via the shopping app.
If approved, the purchase is sent to you and the cost is split into a payment schedule – typically monthly until the balance is paid in full. Approval takes minutes, with no interest or finance charges.
Unlike credit card companies or other consumer loan lenders, BNPL companies generally don’t conduct a hard credit inquiry when you apply. Instead, most BNPL providers only require the following:
- You’re at least 18 years old
- You have a mobile phone number
- You have a debit or credit card to make payments
- They are able to validate your identity
BNPL may seem straightforward and convenient; however, you should consider a few things before selecting this option.
1. Don’t overextend your finances
BNPL makes it easy to purchase something today and pay for it later. Make sure you have a good sense of your finances and whether the payments will fit within your budget.
Just because you qualify for BNPL, or any other credit product, it doesn’t mean you should use it.
2. Understand credit reporting
Your repayment behaviour on loans and credit products is reported to consumer reporting companies. If you make a late payment and the BNPL company reports it, this could harm your credit history.
3. Watch out for late fees
BNPL companies don’t charge interest but do charge late fees if you miss a payment. You might be blocked from future purchases until you make payment, and your debt might even be sent to a debt collector if you fail to repay.
As lenders have different fees and policies, it is important to carefully review the BNPL terms and conditions to understand your obligations.
Also, be aware that your bank may charge late fees if you sign up for automatic repayment through your debit card or bank account but you don’t have enough funds.
4. Fewer protections
BNPL loans currently lack the consumer protections that apply to credit cards. For example, BNPL companies don’t offer the same dispute protections as credit cards if the item you purchase is faulty or a scam.
Returning merchandise can sometimes be complicated. The BNPL company may hold you responsible for the total cost of a purchase even after you’ve returned the product, so be sure to read and understand the merchant’s specific return policies.
5. Compare and contrast
BNPL isn’t the only new payment option available when making an online purchase. Other types of instalment loans let you repay purchases over a longer time, though some of these might charge interest and late fees.
These other options might also require a hard credit inquiry when you apply, and your payments might be reported to credit bureaus, which could help or hurt your credit score.
This article first appeared in jobstore.com.
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