Have you heard of LazyPay, ZestMoney, and Simpl? These are just a few of the dozen odd companies in the Indian market promoting “Buy Now, Pay Later” offers. BNPL, as it is commonly called, is a phenomenon that is on the rise across the world. A recent Reuters report said that the BNPL industry in India is set to surge over ten-fold within four years. This is troubling. BNPL is a dangerous model. And I’ll tell you why. But before getting into that, let’s understand how this model works.
What is Buy Now, Pay Later?
BNPL is a way for consumers to buy products and services without having to pay for them upfront. Payments are collected subsequently, over a short period of time, typically ranging from 10 days to 6 months. These are usually interest-free payments. However, in case you default on any of the payments, you will most likely incur interest charges and late fees.
Consider BNPL a short-term loan, like a credit card. However, there are some differences.
How is BNPL different from a Credit Card?
With a credit card, you are given the option to pay the minimum amount due on your bill. You can carry forward the balance due, which then attracts an interest of around 3% per month. Buy Now Pay Later doesn’t have these options. With BNPL, you get a fixed repayment schedule for a specified term, and you cannot carry forward any balances.
It is important to note though, that defaults, whether on BNPL or your credit card, will impact your credit score negatively. So, beware of missing payments.
The second difference is with respect to credit limits. The maximum credit offered with BNPL is ₹1,00,000. This is much less than the maximum limits on credit cards.
Next come the rewards. There is no comparison on this front. Credit cards have a wide range of tie-ups and reward points to offer.
Despite these differences, there has been rapid growth in the use of BNPL, especially in the past year and a half. With time, these differences might surely reduce. But higher credit limits and more rewards are no match for the reasons that BNPL must be avoided altogether.
3 Reasons to Avoid Buy Now, Pay Later
Easy access to online shopping, convenient one-tap check-outs, interest-free credits, and hassle-free processing of these short-term loans has made BNPL increasingly popular. But there is more than meets the eye.
1) You end up spending more
In early 2021, a US-based analytics firm, The Strawhecker Group, conducted a survey of over 1,500 consumers. According to this survey, 55% consumers said that they tended to spend more using BNPL than they ordinarily would using other payment methods. That’s a significant number!
Imagine having to pay ₹60,000 as income tax all in one go, versus your employer deducting ₹5,000 from your salary towards TDS every month. The latter feels like less of a burden.
Similarly, when it comes to our purchases, our brains process small and large numbers differently. When we see something at a low price, we are more inclined to buy it, even if it means we’ll be paying that amount in multiple installments. BNPL makes it easier for us to succumb to instant gratification, giving rise to impulsive spending. Moreover, most people opt for BNPL to fulfil more wants, not needs.
What helps here is to wait 24 hours before making a purchase. If you’re shopping online, leave the product in your cart for a day or two. You’ll often notice that the temptation fades away by then.
2) Budgeting becomes difficult
Paying for multiple products and services via BNPL makes tracking your expenses tough. You’d have to keep a close eye on the installments. And if sticking to a budget is a weak point, buy now pay later makes it that much harder to adhere to.
3) Borrowing from your future self
Buy now pay later is a loan. Interest-free, yes, but a loan nonetheless. With any loan, you are borrowing from your future self. And that’s a habit that can be hard to get rid of.
Saving up is a much better way to fund your purchases; a reverse BNPL that gives you freedom and doesn’t rob it from you.
Bottom-Line
Bangalore based research firm, RedSeer, estimates India’s BNPL market to rocket from $3-3.5 billion to $45-50 billion by 2026, with BNPL users set to rise from 10-15 million to 80-100 million by the same year. It’s no wonder then that we see new players in this industry ever so often. Amazon brought Amazon Pay Later onto the scene in 2020, and BharatPe followed suit in 2021 with Postpe.
In a recent article in the Business Standard, Ashneer Grover, Co-founder and Managing Director, BharatPe, was quoted saying, “Our aim with postpe is to make EMI and credit available for everyday purchases. ‘Golgappa’ on EMI as well as ‘iPhone’ on EMI is our motto.”
All this scares me. Our financial health has a lot to do with our habits and behaviours. Choosing the buy now pay later option might seem harmless in the beginning, but it leads us down a slippery slope, one that’s best avoided.
So next time you see that BNPL offer on LazyPay or Simpl or any of the other companies, think twice before opting for it. Be a conscious spender and Save Now Buy Later.
