Buy Now, Pay Later apps – the future of online shopping
The recent online shopping trend now brings us Buy Now, Pay Later apps. They are like credit cards, but they’re even more convenient! BNPL services don’t perform credit checks nor charge interest, so you can get what you want faster and easier. If you’re not careful, though, that convenience may come at the expense of your financial health!
This doesn’t mean you should avoid using BNPL apps because personal finance always boils down to responsibility. Instead of avoiding these services, it would be better to learn more about them, so you can take advantage of them if needed. More importantly, it would be great to learn about the trends forming in this age of online shopping.
We will have to start by talking about how these Buy Now, Pay Later apps work. You’ll see that they’re trending because of the effects of the pandemic. Then, we’ll check the upsides and downsides of using these services, so you can decide if they’re worth using or not. We’ll discuss using such services responsibly, so you don’t fall into bad habits and debt sinks.
What are Buy Now, Pay Later Apps?
As the name suggests, BNPL services let you acquire items immediately and pay the purchase amount later. What makes this different from a credit card, though?
The main difference is that Buy Now, Pay Later apps usually don’t perform credit checks. In other words, you can defer payments for stuff even if you have bad credit.
This is especially useful during the pandemic, as millions of people lost their jobs and businesses. People may have lost their cash flow, but they still have to meet their needs.
BNPL apps provide short-term financing for various retailers. They usually provide a “Pay in 4” program to pay for your items in 4 monthly installment payments.
In the US, most of them just let you buy from fashion brands like H&M and Adidas. Other countries take it a step further. Let’s look at the Philippines as an example.
Some of its Buy Now, Pay Later apps allow you to cover cab rides and even food. Projections say that BNPL payments in the Philippines may grow by up to 66% in 2021.
What’s more, the overall BNPL market may exceed $20 billion by 2028 due to its growing popularity. What could be the reason behind the hype?
What are the upsides of these services?
- Quick and easy setup – It only takes a few minutes to make a new BNPL account, but opening a new card takes more time and effort.
- Convenience – If you pay online via credit card, you have to struggle typing in its details. With Buy Now, Pay Later apps, you just select it as the payment option, and it will take care of the rest. You may even use some of them in brick-and-mortar establishments because they may link to digital wallets like Samsung Pay.
- Automatic payment plans – As I said, BNPL apps just divide the payments into four monthly payments. Then, the app will automatically charge your credit or debit card. You just have to make sure it has enough funds, or you’ll be charged late fees.
- Interest-free payments – One of the biggest selling points of BNPL apps is that they don’t have interest rates as long as you submit payments on time.
Read More: Should You Get A Robinhood Credit Card?
Be careful when using Buy Now, Pay Later Apps
People like BNPL apps because they don’t have to worry about their credit scores. Yet, these numbers are intended to help credit card issuers choose responsible borrowers.
Of course, lenders would want their money back. It’s not that easy to see if a person will repay in the future, though. That’s why credit bureaus assess them using the FICO scoring model.
Credit scores protect borrowers too. This requirement may encourage you to become more responsible in how you use money and credit.
In other words, it keeps you from taking on debt that you cannot handle. Buy Now, Pay Later apps to remove this limit, providing convenience in exchange.
These apps could encourage people to keep on buying stuff on a whim. With the speed of online shopping, you could be rushing towards bankruptcy! Here are the other flaws:
- If you don’t have enough money in your account, you might be charged late fees.
- Some may find it convenient that Buy Now, Pay Later apps automatically charge their accounts. This might not be such a great idea if the payment date falls before your payday. As a result, you may rack up a lot of deferred fees.
- While BNPL apps don’t perform credit checks, your bank may check your BNPL payments. If you don’t manage your BNPL balances properly, this may discourage lenders from giving you credit options.
- Some BNPL apps may affect your credit score because they perform hard credit inquiries. Check online reviews to make sure your BNPL wouldn’t do this.
Personal finance tips
If you check my other content, you’ll see that I’m all about personal finance. Before you use Buy Now, Pay Later apps, you might want to consider proper money management first:
- Have a budget – List all your regular expenses, and then separate your needs and wants. Then, determine your take-home income, which is your salary minus taxes.
- Reduce expenses – Look at the list of wants, and see which ones you could do without. If you have multiple online streaming accounts, try keeping just one.
- Get rid of debt – Spending less may give you more money to pay off debts. Complete them as soon as possible so that you may allocate more funds to your needs.
- Increase cash flow – You may sell stuff you’re not using to get more money. Also, you might want to get a side hustle, and it’s much easier nowadays since you can find much more work-from-home jobs.
- Build an emergency fund – Some of that cash flow should lead to savings so that you can cover sudden large expenses easily. This also keeps you from going deeper into debt.
If you’re having trouble getting rid of unpaid balances, get a free credit report first. Various websites like Credit Karma provide these features.
This will help you gauge your current credit rating. Then, you might want to try debt reduction strategies like consolidation, settlement, and credit counseling. You may use DIY methods too!
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Final thoughts
Sound personal finance management fosters good money habits, so you can be responsible even when using Buy Now, Pay Later apps.
It’s up to you whether you still want to use BNPL services or not. Just make sure you learn all you can think about them beforehand. All of them have customer service reps who can assist you.
For more financial trends, check out the other Inquirer USA articles. Those will show you the latest in the world of finance and investments.
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