Buy Now Pay Later (BNPL) is a line of credit that customers use to make purchases with borrowed money. When they make transactions using BNPL, they pay it back through weekly or monthly repayments. The first of these is made at the till when you make a payment, or when you press ‘order’ when online shopping.
BNPL are usually short-term finance, and are used quite regularly by users to ease the pain on their wallets when shopping. The average BNPL purchase is $200, with most users paying off debt on a monthly basis, while many also opt for bi-monthly payments.
Many BNPL providers offer 0% interest, especially as competition rises and large platforms, such as Paypal and Amazon join the BNPL party. Some BNPL charge interest, but these rates are typically low.
This is why BNPL is so popular: it is either free or very cheap, and it allows you to stretch payments for longer.
Why Is Buy Now Pay Later Becoming More Popular?
The Covid-19 pandemic saw online shopping take off. In 2021, global e-commerce rose to almost $27 trillion, with many shoppers hit hard by job losses, furlough, or a reduction in wages. As such, a helping hand when shopping was welcomed by many. BNPL was there to help shoppers through tough times, and continues to do so.
Banks and lenders are starting to enter the market, striving to compete with fintech competitors. In 2022, Santender is launching its own BNPL app called Zinia. Meanwhile, Goldman Sachs agreed to buy GreenSky for over $2 billion.
What Are The Downsides Of BNPL?
BNPL is a means of accumulating debt which must be paid off. If you fail to pay off what you owe, your credit record will suffer, you may incur further fees, and you are putting your future self at a disadvantage, as it becomes more difficult to borrow.
Another downside of BNPL only applies if your provider charges interest. This represents the cost of borrowing. Unless the interest applied to your loan is 0%, you are paying to borrow money, making your purchase more expensive.
What Could I Do Instead Of BNPL?
If you really need cash, there are plenty of options. Stay calm, and consider them.
Credit cards can in some way offer the same thing as buy now and pay later, since you can pay for something immediately and pay it back within 30 days or until your next credit card bill is due. Credit cards also allow you to make minimum payments so you can pay just a fraction of the amount owed and continue to revolve your credit, although this will come with added fees and negatively impact your credit score.
Cash advances can come in the form of a loan from a private lender or an early paycheck 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.
Borrow money from a loved one
These are 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.