What is Buy Now Pay Later (BNPL)? How It Works & Benefits

With the evolution of online digital platforms, shopping has become so easy that you can buy goods and services from the comfort of your home. And it has become easier with the digital payment options like Buy Now, Pay Later Schemes offered by various financial institutions. These options allow consumers to make purchases instantly and pay for them in flexible installments over time.

In today’s blog post, we will give you an overview of the Buy Now, Pay Later Scheme along with the key advantages of using it.

What is the Buy Now, Pay Later (BNPL) Scheme?

Buy Now, Pay Later is a scheme that allows consumers to purchase goods and services instantly and pay for them later in installments. Fintech companies, banks and digital platforms generally offer this scheme. This scheme is often used in online shopping, electronics, fashion, and lifestyle purchases. Generally, it can be called a short-term financing option to purchase goods and services.

Features of the Buy Now, Pay Later Scheme

The key features of the Buy Now, Pay Later Scheme are as follows:

1. Instant Limit: The user of the Buy Now, Pay Later Scheme gets instant approval of a loan with limited documents. The user gets the limit after completing the KYC.
2. EMI Payments: Payments for purchases made using Buy Now, Pay Later Schemes are to be paid in EMI form. This feature makes it attractive for buyers who wish to pay in installments. 
3. Zero Cost: There are various Buy Now, Pay Later providers who offer zero-interest EMI options. Zero-cost EMI is suitable for buyers who want cost-effective purchase options.
4. Digital Processing: Zero paperwork is required while processing the BNPL option. The process is fully digital, and it can be easily completed using mobile applications and websites.

How Does the Buy Now, Pay Later Scheme Works

The steps of how the buy now, pay later scheme works are as follows:

1. Opting for Buy Now, Pay Later: While purchasing any mobile application or ecommerce platform, choose the BNPL option instead of using options like debit and credit cards, cash, UPI, etc.
2. Check for Eligibility: Once you select the BNPL option, the service provider makes a quick eligibility check. This check requires KYC verification, Credit history, etc.
3. Made Purchase: As soon as the eligibility is confirmed, you can make the purchase using the BNPL option, and the service provider pays the full amount to the merchant.
4. Choosing Repayment Schedule: Once the purchase is made, you can then select the repayment option. As generally there are two options available, such as convert into EMI, or pay later, generally after one month.
5. Auto Debit: If you have the option for the EMI option, then you have to set up an autodebit mandate from your bank account. This makes sure that the payments are made at regular intervals without avoiding any late fees.

Read Also: What is Pay Later (MTF) & Steps to Avail Pay Later?

Advantages of using the Buy Now, Pay Later Scheme

The key advantages of using the Buy Now, Pay Later Scheme are as follows:

1. Immediate Purchase: Using BNPL, the buyer can instantly purchase products and services of their choice, even if they do not have enough money on hand.
2. Do Not Require Credit Card: Purchasing through BNPL does not require a credit card. This service is available for those who are not even eligible for credit cards.
3. No Interest: Users of BNPL services are not required to pay any interest on the purchases made by them. It makes short-term borrowing a more effective and cost-effective option.

Disadvantages of using the Buy Now, Pay Later Scheme

The key disadvantages of using the Buy Now, Pay Later scheme are as follows:

1. Overspending: Buyers are not required to pay immediately. Hence, there is always a risk of overspending, which can lead to financial stress. 
2. Impact on Credit Score: Any missed EMI or delay in repayments can negatively impact your credit score. And this can also make it difficult to get loans in the future.
3. Hidden Charges: There are several BNPL service providers that charge some hidden fees, such as processing fees, convenience charges, etc.

Factors to Consider Before Using the Buy Now, Pay Later Scheme

There are several factors that one should consider before choosing the Buy Now, Pay Later Scheme. A few of such factors are as follows:

1. Necessary Purchase: Before choosing the Buy Now, Pay Later scheme, one must ask oneself whether the purchase is necessary and should avoid impulsive purchases.
2. Charges: One should opt for BNPL options from only those companies that do not have any hidden charges. Therefore, it is advisable to carefully read the terms and conditions.
3. Repayment Options: BNPL schemes offer different repayment options, such as EMI or after 15-30 days. Hence, choose a tenure that suits your financial situation. 

Read Also: Pledging Shares vs Pay Later (MTF): Key Differences

Conclusion

On a concluding note, with the evolution of e-commerce platforms, the Buy Now, Pay Later schemes have become a popular payment option. Because of the flexibility to purchase products instantly and pay them later, it has become an attractive buying option for online shoppers. However, along with the benefits of the BNPL scheme, it comes with certain risks such as overspending, hidden charges, penalties for late payments, etc. Hence, it is advisable that one should use the BNPL option only when it is necessary and must repay the amount on time. For more finance news & insights, download Pocketful – Zero delivery brokerage, zero AMC, and advanced trading tools.

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