With many choosing to shop online rather than in-store these days, diverse payment options have sprung up to allow consumers to shop with ease and convenience. Buy Now, Pay Later (BNPL) has been around in a simple form since the 1800’s, but it wasn’t until the early 21st century that this strategy was capitalised on by fintech companies to offer an alternative way to purchase. Many merchants keen to take advantage of the trend have implemented BNPL in their stores as a method to target new customers and increase profits, but is BNPL as simple as it sounds?
BNPL operators work by paying the total sum upfront for the customer, then splitting the purchase price into multiple equal repayments made fortnightly or monthly to ease the upfront cost. Whilst shopping can seem cheaper and more manageable when split into these smaller sums, losing track of what is due and when can happen quickly, particularly if multiple purchases have been made across a period of time and you are using more than one BNPL provider. These seemingly budget-friendly options can easily allow consumers to fall into a trap of spending more than they can afford, particularly if their financial habits are already risky.
BNPL services can also encourage impulse purchases and higher spending through the elimination of financial barriers traditionally imposed by lenders and banks. Whilst the verification process implemented by lenders and banks seems extensive, it is meant to be – as a way to protect you and ensure you are within your financial means to make repayments.
As BNPL lenders aren’t covered by the National Consumer Credit Code, they don’t have the same legal obligations as banks and other lenders, meaning they also don’t need to offer financial hardship advice if things go south. This could leave you isolated if something occurs that impacts your ability to make repayments.
Whilst these legal loopholes may provide convenience in the short term, the lack of regulation can ultimately allow consumers access to funds that aren’t within their financial circumstances to afford. Under the guise of ‘interest-free’ repayments, customers can be lured into a false sense of security and overestimate their repayment abilities. And yes, whilst the ‘interest-free’ proponent is true for some BNPL providers, it comes under the obligation of meeting your repayment deadlines. If these are missed, this is where things can get tricky, as late fees and potential administration charges are tacked on and can accumulate quickly. Without proper budgeting and financial discipline, consumers can find themselves trapped in an accumulating cycle of debt, particularly if they fail to meet the payment due dates.
It’s also important to note that BNPL accounts can impact on your servicing capacity when applying for other loans, including mortgages, car loans, personal loans, and more. Similar to a credit card which has a set limit, regardless of the amount left owing on your BNPL account, lenders will consider the entire account limit when identifying if you can service the proposed debt.
Whilst BNPL can provide short term relief for cash-short customers, the long-term implications can negatively impact your financial standing and can encourage unhealthy spending habits. When making purchasing decisions, you should always consider what is right for you and your budget.
If you need access to funds, get in touch with us on 1300 611 331. We can find finance that is right for you and your situation and ensure you receive adequate support from our experts.