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5 things Should know regarding buy-now, pay-later deals

5 things Should know regarding buy-now, pay-later deals

For the larger items we have EMI system in place. But sometimes, for some occasions people may need furniture immediately and do not wish to deal with EMIs later on. But do not have access to funds too. For example, when one has just shifted to a new place with a new job and need to get their house in order. They can use Buy Now Pay Later Furniture.

Buy Now Pay Later Furniture works in the same way as other Buy Now Pay Later mechanisms. Although, not many companies offer it. There are only some companies who deal with Buy Now Pay Later furniture.

Here are 5 things to know about Buy Now Pay Later deals.

1. What is Buy Now Pay Later?

Buy Now Pay Later schemes allow buyers to buy items even without a credit history. It allows buyers to buy items within a pre-decided interest free period. A Buy Now pay Later provider settles the bill with the merchant on behalf of the buyers and the buyers pay back to the BNPL provider. With the onset of COVID this seemed like a wonderful opportunity of buying many things and having to worry about the bill later on. The process starts like this- for the first payment, buyers need to complete the KYC registration with the Buy Now Pay Later scheme provider, like Paytm. At first the limit is usually only Rs. 500 with the limit slowly going up to Rs. 30,000, sometimes even Rs. 1 lakh.

2. Where can it be used?

It can be used anywhere as long as the monthly bill is paid back. It can be used for food delivery, grocery, travel bookings, gaming, you name it. In the past recent months, Amazon, Flipkart, Paytm and many more companies have allowed the introduction of Buy Now Pay later. In fact, it can even be used to buy gadgets and a lot more.

3. Is it better than credit card or similar to it?

Credit cards currently allow you to postpone your purchase for a set period of time. If you do not refund the sum by the due date, you will be charged interest. However, these vary from BNPL in some ways. A BNPL card can only be used with a partner merchant, while a credit limit is used with any firm that recognizes it as a payment method. Aside from annual recurring fees, credit cards frequently have onboarding costs such as membership fees. There are no such expenses associated with the BNPL programme, but a few non-bank creditors do levy a minor processing fee. Credit cards often carry significantly higher interest rates than BNPL programmes. Whereas credit cards are known to charge interest rates varying from 36 to 45 percent per year, BNPL loans are typically accessible at rates as low as 30 percent per year. Furthermore, you can only qualify for a credit card if you fulfil specific income requirements. The BNPL option is available to anyone who does not meet the stringent credit card eligibility criteria. The majority of these customers can readily obtain the BNPL facility.

However, BNPL has several drawbacks as compared to credit cards. BNPL credit limits are typically substantially lower than credit card credit limits. While credit cards offer an interest-free term of up to 45 days, some BNPL solutions offer a shorter repayment period of 15 to 30 days. Furthermore, using a credit card earns you incentives such as cashback, discounts, and air miles, among other things. You will not be able to earn rewards with BNPL.

4. How to get the best benefits out of Buy Now Pay Later scheme?

The opportunity to delay payment without incurring interest and cut it into smaller chunks seems quite enticing. ‘Buy now, pay later’ is frequently used by consumers to buy items they cannot afford. Small quantities can deceive consumers to spend more than they should. Make sure you understand the fine print before you hurry to fund every part of your life with a BNPL loan. If you really are already overleveraged, this is not the option for you. Younger borrowers should remember that they are building their credit history. Your payback history determines your future creditworthiness. If you utilise your credit limit properly and return on time, you may be granted higher spending limits for future orders.

5. What is the catch in this wonderful scheme?

Apart from the eased loan qualifying standards compared to other options, the interest-free repayment window is the hook for consumers. You should, however, be capable of paying within this time range. If a customer fails to make a payment within the specified time frame, the creditor will impose interest on the outstanding balance. They may also be charged exorbitant late payment penalties. If you do not use this facility carefully, you may find yourself in debt. Furthermore, any pay anomalies will be submitted to the credit bureau, thus lowering the buyer’s credit score. This may raise the cost of future loans or, worse, cause creditors to deny any subsequent loan applications.

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