There was a lot of criticism and doubt when credit cards were first offered as a new way to encourage consumption. People gradually began to believe that, if used carefully, credit cards might be quite useful in meeting their home and personal expenses. However, in recent years, a new technique for financing new goods has gained popularity. You’ve probably noticed that e-mails are filling your inboxes with tempting offers to make a new purchase. Several banking organizations and e-commerce companies are offering “buy now, pay later” programs to consumers.
As many people have been struggling to manage their finances, the Covid-19 pandemic has expedited the emergence of these BNPL plans. But are these plans really helpful especially for middle-class people who can’t afford some items but desperately want to buy them? Well, yes they are beneficial to some extent as these plans allow customers to purchase things and pay for them over a certain period. BNPL credit cards can be used to pay for practically any online transaction, from food delivery to airline tickets to home appliance purchases. Some of the firms that provide BNPL services are Amazon Pay, ZestMoney, LazyPay, etc.
These plans presumably don’t have any adverse effect on the rich as they can buy any item without availing of BNPL. However, if they opt for this plan, they have enough money to easily pay on time for the product bought. And in case, if they forgot to pay within the deadline, the interest amount will not affect them much. But, what about the middle class and lower-middle-class people who use the BNPL plan thinking that this will help them pay in installments without any interest?
People are oblivious to the terms and restrictions associated with it due to its ease of usage. People are attracted to the zero-interest credit offered by these Fintech companies and forget about the high-interest charges they will be assessed based on if they fail to pay on scheduled time.
Everything is fine with this plan until you fail to pay on time. The difficulty begins when you pay late. You may be required to pay interest and other fees. And also this will lead to having a negative influence on your credit score. Due to peer pressure or just to show off, middle-income people buy products on BNPL and later fail to pay on time. These late payments may lead to your blacklisting from the app. In the long run, when you will need a more significant loan, such as a home loan, other financial institutions, such as banks, will look at your credit score to see how you manage your money. And negative credit score will surely work as a hurdle in your loan process.
“Buy now, pay later” had encouraged people to buy useless products. This scheme is good if used in needy times for emergency products, but people especially from the middle class have started availing of this plan just to lead a rich lifestyle. Customers are buying expensive and unneeded things from e-commerce platforms solely because they just want to utilize BNPL. This may instill a habit of shopping on credit, which will keep customers perpetually in debt. These plans may direct to a change in your financial behavior. Hence, this method can’t be assumed as sustainable especially for the middle class and poor people.
“Buy now, pay later” (BNPL) plan is suitable for people whether rich, poor, or middle class only if they are comfortable in keeping track of where their money goes regularly. If not, using these plans and BNPL apps may encourage an unhealthy habit of taking on unneeded debt. This financial innovation will be more sustainable and useful when it will finance livelihoods rather than just luxuries.