Wed, 10 Aug 2022

How does 'buy now' - 'pay later' work?

14 Jul 2022, 22:24 GMT+10

Based on the latest figures, BNPL is one of the fastest-growing digital payment methods. More than 5% of eCommerce transactions are made via this payment method. Since the pandemic reached the global markets in 2020, around 5 million people have used the service in that year alone.

BNPL stands for buy now pay later and is a short-term financing solution, say a credit card. It allows customers to make purchases from eCommerce stores and pay the amount at a future date. Popularly referred to as the 'point of sale installment loans,' BNPL has already become extremely popular among the payment options available when buying something online.

Some key points to remember about BNPL are -

  • BNPL allows customers to purchase today and pay at a future date.
  • In most cases, customers need to pay a small down payment, excluding the remaining amount that can be paid in a predetermined number of installments.
  • Unlike a credit card, most BNPL service-providing companies do not ask for any interest.
  • Late payments or failure to pay within the installment dates will affect the person's credit score.

Buy Now, Pay Later - Explained

BNPL schemes or programs are not the same everywhere. Every third-party service provider company has its terms and conditions. However, these programs generally are based on point-of-sale installment loans. Therefore, more or less, they resonate around the same path that includes -

  • The customer purchases at an online retail store that supports BNPL. Hare, the customer is required to select the definite option while checking out.
  • There will be a small eligibility requirement, but nothing as detailed and demanding as that of credit cards.
  • If the customer is approved for the pay-later scheme, they need to make a small down payment, say 25% of the overall purchase price.
  • The remaining amount can be paid in a series of zero-interest payments. It can be either within some days, weeks, or months.
  • The payment options for the installments are via a cheque, bank transfer, or direct deductions from a debit card, credit card, or bank account.

How is BNPL different from Credit Cards?

Both of these payment methods involve a delayed payment mode. So, how is making a purchase under the BNPL program different from that with a credit card? Well, with a credit card, you need to pay only the minimum payment due every month. That amount also includes interest rates on the remaining amount unless you pay the total amount.

In contrast, BNPL programs are mostly free from interest rates or charges. However, they have a fixed repayment schedule based on the prefixed time - usually in days, weeks, or months. The buyer will be told beforehand the numbers they need to pay on the scheduled day.

Wrapping Up

The buy now pay later scheme is one of the most popular payment methods today among retail customers. But, one needs to understand that not all purchases from every online outlet can be made via pay-later financing.

Also, there might be certain limits on the amount that can be paid in the BNPL process. And that entirely depends on the service provider company and its rules and regulations.

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