The History of BNPL
Buy Now, Pay Later (BNPL) plans first emerged in the 2010s as an online payment option. The most classic iteration of BNPL plans may be the pay-in-4 method, whereby you pay 25% of the total price upfront, receive the product, and pay the rest in equal installments every two weeks.
The roots of BNPL go back to the layaways and installment plans of the early 20th century. Layaways allowed customers to place a hold on a product by paying a fee upfront, but the customer would only receive the product after making the rest of the payment in installments. Installment plans allowed customers to obtain a product immediately by paying an upfront fee and paying the remainder of the price over installments.
Subsequently, credit cards emerged as the dominant payment method, but the high interest rates, fees, and credit checks associated with credit cards made them less appealing to some consumers, particularly those with lower credit scores.
BNPL plans may present an attractive alternative to credit cards because they often come without an interest rate and without a hard credit check. In this article, we will review the pros and cons of BNPL.
Pro: Ability to Split Up Payments
Perhaps the main appeal of BNPL is the ability to split up your payments. It may allow you to obtain a product immediately upon paying 25% of its total price, with the rest of the payments deferred. It reminds one of the saying, “How do you eat an elephant?” The answer: “One bite at a time.”
Con: Risk of Debt Stacking
The allure of BNPL may cause us to underestimate the cost. We may lose track of our purchases, particularly if we use different BNPL providers at the same time, and that may lead to overspending and debt accumulation.
Pro: No Hard Credit Checks
One of the major benefits of BNPL plans is the absence of a hard credit pull, which means your credit score won’t be affected, and consumers with less-than-ideal credit scores may more easily obtain BNPL products and services.
Con: Fewer Consumer Protections
BNPL has not yet received the same amount of regulatory oversight as credit cards and other credit products. This vacuum results in fewer consumer protections, which can lead to the rights of consumers being overlooked by BNPL providers in favour of quick profit. Therefore, enter this space with extra care and caution.
Pro: Easier Approvals
BNPL loans are typically available at checkout when shopping online and are easy to access. You may often access this payment option with just a click of a button at checkout, though the very ease and convenience of access should keep you on your toes. You may be signing up for particular terms and conditions sight unseen.
Con: Potential for Credit Score Impact
While successful payments will not be reported to credit bureaus, missed or late payments may impact your credit score negatively. Therefore, it’s paramount to keep track of your BNPL loans and payment due dates and ensure you always have sufficient funds in your bank account to cover each payment.
Pro: Predictable Payment Plans
BNPL plans offer a predictable payment structure, such as pay-in-4 – four equal installments once every two weeks – monthly payments over 3, 6, or 12 months, and deferred payments where you pay the remainder of the price after a deferment period of 30 to 90 days.
Con: More Difficult to Obtain Refunds
As the BNPL industry is still relatively new, there may be a lack of regulations regarding returns and refunds. This may make it more difficult to make returns and/or obtain refunds in a timely and transparent manner. BNPL providers may take advantage of the current regulatory vacuum to make refunds less accessible.
Pro: No Interest Rate
BNPL loans may often be interest-free, though not always. Obviously, interest-free loans are more affordable than high-interest loans, all other things being equal. However, even when the loan is interest-free, missed or late payments can lead to significant charges and fees as well as negatively impacting your credit score.
Con: Hidden Fees
While BNPL loans may often be interest-free, they may also involve hidden fees. Missed or late payments may result in your being charged interest or fees, which may be quite high. Therefore, make sure you always have sufficient funds to cover the installments on time.
Pro: More Purchasing Power
High-ticket items that previously might’ve seemed inaccessible due to their high prices, such as expensive technology or furniture, can now be accessed by splitting up the payments. This gives access to high-ticket items to consumers who are unable to pay the full price upfront.
Con: Terms and Conditions Not Always Clear
The ease of accessing BNPL may lead us to overlook the terms and conditions. This may lead to surprises such as hidden fees and interest rates. In addition, the terms and conditions themselves might be written in a confusing and convoluted language, leading to a lack of clarity and understanding. Therefore, exercise caution when you sign up for BNPL.
Conclusion
BNPL options are becoming increasingly popular, especially among younger generations. However, like any credit product, it comes with its own advantages and potential drawbacks. Tread carefully.
If you need to cover urgent expenses, apply for an installment loan online via LendProConnect. We don’t check your credit score or credit report during our simple and easy online application process. It only takes a few minutes.
To monitor your credit health, sign up for Credit Verify! The registration process is quick and easy. Take proactive steps to improve your credit score with Credit Verify.
