Should You Opt For Buy Now or Pay Later Schemes?

When most of us hear “Buy Now Pay Later” (BNPL), we automatically assume it has something to do with credit cards. Many e-commerce companies, banks and a few fintech companies offer this financing option. It is similar to the “khaata” system we have seen before.  It is expected to be one of the fastest growing online payment methods in the coming years, accelerated by the pandemic. 

BNPL is a point of sale instalment loan offered by companies. It is a short term scheme and is different for each company that offers it. The merchant provides the customer with the option to buy now and pay later at a set future date. Typically, the customer makes a portion of the payment upfront. Failure to pay on time results in paying the interest levied depending on the amount. 

BNPL is similar to credit cards as it offers an interest-free credit period along with the option of converting the scheme into an equated monthly payment (EMI) if the lender agrees. It is essential to be aware of the terms and conditions before agreeing to the purchase. 

Compared to credit cards, the interest-free period is generally different. Some lenders offer periods similar to periods provided by credit card companies. Credit cards are widely accepted, whereas various merchants have their BNPL options. BNPL options typically do not have costs such as joining fees and annual fees associated. Another difference between credit cards and BNPL schemes is the eligibility criteria. Not everyone is eligible for a credit card. However, most consumers can avail BNPL option easily. 

While deciding between paying via credit card or opting for a BNPL scheme, make sure to compare the finances to analyse which option is more economical for you. Also, make sure that you will not default on your repayment, as BNPL schemes often levy heavy interest rates as a penalty. 

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For any clarifications/feedback on the topic, please contact the writer at jyotsna.singh@cleartax.in

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