The Growing Risk of Buy Now, Pay Later 

Many of us frequently take advantage of the ‘buy now, pay later’ sector. It seems like a very convenient way to spread the cost of purchases. This growing sector is becoming an increasingly common way to pay. However, this sudden growth comes alongside a lack of standardized guidelines that could mean future issues for consumers.

 What is ‘buy now, pay later’?

‘Buy now, pay later’ seems like an offer that’s too good to be true. It gives customers the ability to split the cost of a purchase into fixed monthly payments without paying any interest. 

You have probably seen more and more ‘buy now, pay later’ options becoming available for a range of retailers. This payment method is becoming increasingly common and has even been highlighted as one of the biggest recent trends in e-commerce.

Global sales of ‘buy now, pay later’ platforms are already hitting around $100 billion. The growth of these platforms is predicted to rise fast in the next few years. This huge success is hardly surprising as many customers are tempted by the enticing offer of delayed payments and zero interest.  But are there any hidden dangers behind this payment method?

What are the risks of ‘buy now, pay later’?

How many people are seduced by the zero interest payments, the ‘buy now, pay later’ option could  end up being a worse deal for the customer. The appeal of a zero interest payment is obvious, as making a similar purchase on a credit card could end up costing a fair amount depending on your credit card’s APR. The problem comes when payments are not made. The credit card industry is closely regulated and as such adheres to a widely understood set of rules. However, because ‘buy now, pay later’ is such a new industry it lacks regulation and it can be difficult to know what kind of a deal you’ve got yourself into. Most customers won’t read the fine print to fully understand the terms of their loan.

How do ‘buy now, pay later’ platforms work?

‘Buy now, pay later’ platforms essentially offer a short-term loan that allows you to make a purchase and pay it off in installments. How can platforms make money if they’re not charging interest? Most platforms make the majority of their profit by charging retailers to offer their platform to customers. The retail pays so that they can offer the buy now pay later platform to their customers. This makes sense for retailers as many customers will make large purchases that they may not have been able to make without the option to ‘buy now, pay later’.

Every company works slightly differently but because of this consumers can easily be confused. It’s possible that a consumer starts with a 0% interest loan, but after some time is offered a loan with interest. If you’re not in a position to pay off your loan immediately you might need to take this option.

The rates that you’re offered by the buy now pay later company could end up being equal to or even higher than what you would have paid using a traditional credit card. It can be very difficult for consumers to keep up with what they’re being charged because the rate of interest can vary between purchases from different merchants.

Is BNPL a good option? 

‘Buy now, pay later’ can be very helpful to split large payments into more manageable chunks over a longer period of time. However, they should always be carefully considered. Although you might be promised 0% interest merchants may charge more and you would have paid otherwise. So although your payments will be staggered you may end up paying off more than the original cost of what you bought.

When you’re entering into a buy now pay later agreement look carefully at what interest rates you’re being charged and whether or not this is the best deal for you.