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Buy Now Pay Later sounds good on paper. But there are many hidden pitfalls in this system. Most people understand that 0% APR has something fishy going on. The fact that you’re even reading this article proves you have some doubt. Or maybe you only want to know whether it will affect your credit score or not.
Buy Now Pay Later is a financing system that is becoming more popular every day. There are several reasons, but the main one is the lack of awareness among people. In this article, you will find out everything about the Buy Now Pay Later Model. You will also learn how that differs from responsible lending and loans.
What Is The Buy Now Pay Later Service?
The easiest way to describe the Buy Now Pay Later service is by comparing it to a mini-loan. That is essentially what this service and business model is. It is a type of mini-loan that will give you immediate financial benefits.
The BNPL service providers usually team up with retailers and let you pay in installments. Instead of checking out with your credit or debit card, you apply to the BNPL service provider. The service provider will then check your credentials and decide, based on some criteria, whether you are eligible for the service.
The BNPL companies never specify what criteria they use to determine the eligible candidates. And different companies might have different criteria based on their operating location.
Why Is Buy Now Pay Later So Popular?
The Buy Now Pay Later model has been around longer than a decade. But it has never been as popular as it is these days. There are actually quite a few positive aspects of the BNPL system too.
Here’s a list of all the good things about BNPL:
1. No Interest Charge
In the more traditional systems like the credit card, you have to pay a certain percentage to the service provider. Any traditional loans will require you to pay a percentage in interest.
Buy Now Pay Later services do not charge interest like credit cards. Yes, you did not misread, it literally charges nothing for the loan.
2. Accessible
Any responsible loan provider, or even your credit card company will do a background check before giving you a loan. They look for good credit history, income, and other related info to make sure you can repay the loan.
BNPL services, on the other hand, have very lax criteria for approval. Most people can get such a loan as long as they have a moderate credit score. It is easy to get approval from a BNPL service provider, but their criteria for approval are dubious.
3. No Effect On The Credit Score
Any personal loan will hit your credit score in most countries. At least in the short term. One of the selling points of the BNPL service is that they do not notify you of your debt. So, it has a nonexistent effect on your credit score.
You also do not need to pay the entire amount at once. The company will usually give you an installment option, and you can pay them back based on that agreement.
The Dark Side Of Buy Now Pay Later Service
So far, the BNPL service should seem like a very lucrative offer to anyone. We discussed all its good parts first so that you can understand how terrible it truly is.
1. Makes People Spend More
The BNPL business model is predatory. It is by far the worst widely-accessible financing option currently. The reason is that it manipulates human psychology to gain profit. Do you know why the retail chains partner up with these services? No, it’s not that they are getting a direct payment or anything.
People tend to buy more when they have the option, and the retail stores won’t say no to more sales. Yes, some people are very good at controlling their impulses. But some people are absolutely terrible at it. The latter vastly outnumbers the former in any society under any demographic condition.
2. Penalties For Late Payment
What happens when people spend more than they should? They struggle to make ends meet later. The same thing happens when you use the BNPL service to buy more than you should. A large section of the BNPL service users ends up falling behind in paying back their loans.
That is where BNPL services make their profit. They advertise interest-free loans. But they don’t advertise the fact that there are severe penalties if you do not pay them back in due time. BNPL is exceedingly good at taking people to the cleaners if someone falls behind in payment.
A BNPL service can directly charge your credit card for interest for late payments. These services will also report your late payment to credit bureaus which can severely affect your credit score long term.
The BNPL services are far worse than loan sharks. Because people go to the loan sharks knowing full well what they are getting into. That is the last resort for most people. But the BNPL provides a very similar service and encourages you to use it often.
3. No Legal Regulation
The BNPL services do not have a regulatory body in most countries. That does not make them illegal in any way, but you can’t complain about their services to anyone. And they will keep giving you loans even if you have no way of repaying them without going bankrupt. They will find a way to get back their investment, and you will be the one to suffer.
There is also the hassle of online purchases. People often need to apply for a refund for a faulty product, they might also want to return it altogether. It’s usually a straightforward process if you use cash-on-delivery, or credit card payments. But you can not do that with the BNPL service.
Conclusion
We hope this article has managed to help you understand the dangers of the BNPL scheme. Some people think they have enough self-control to not fall into the rabbit hole while using such a service. But no one can ever guarantee what happens in the future.
If you truly need to take loans, take them from a responsible source. We at EFTcapital are always there to help you with trustable and affordable loan services.