Buy Now, Pay Later (BNPL)

[alastantiger]

Last month a friend bought a phone from a merchant that offers Buy Now, Pay Later (BNPL) program. In fact it wasn't planned. Her phone had just gotten broken that morning and she had to get another one ASAP so as not to miss an important deal. She made initial deposit and then a repayment plan plus interests of 6months.

Before I go on, what is Buy Now, Pay Later (BNPL)?

A buy now, pay later plan (BNPL) is a loan offered to a customer at the point of sale so they can purchase merchandise on credit but without a credit card. Popular options include Shop Pay Installments from Shopify, Affirm, Afterpay, Sezzle, PayPal, and Klarna. Many will run an instant soft credit check on the customer (the type that doesn’t affect your credit score), and then release funds for a point-of-sale loan. Customers have different options for paying off the loan balance, which typically depend on the company used and the amount borrowed; some payment options incur interest, but others do not, and some companies charge late fees or fees for missed payments. BNPL companies may offset the lack of interest charged to the consumer with a fee that they charge the retailer.

Okay, back to the main gist. If she fails to make repayment on the loan plus interest within the said date every month, her access to most of the functionalities on the device will be locked. Since then she has been thinking, who really benefits from the Buy Now, Pay Later (BNPL) -  the customer,  the company or the BNPL vendor(third-party credit specialists that manage the BNPL program)?

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[D ltr]

in plain view, it is the customer who benefits if they don't make payments they get the product for free, but this will boomerang at a later time, it can be said to be fraud in transactions,
However, if payments are made regularly, it is the party that provides funds in the transaction (BNPL vendor) who benefits. not plafrom

[avikz]

It's a win-win situation! All parties involved in this BNPL process, are benefited.

1. The buyer did not have to pay a huge amount of money infront and got the convenience of EMI facility.
2. The shopkeeper sold the product and got complete payment from the BNPL company. No risk of missed payment.
3. The BNPL company acquired an asset (loan is considered as an asset in banking) and earning interest on that.

So no one is at loss really. Only the BNPL company has take a risk by lending money.

[Hispo]

I have not seen this business model here in my country, but I can see the appeal of it during there economic challenging times.
What worries me the most if the fact this could represent a problem for clients who may abuse this new system and try to acquire more products or credits than they can actually afford to pay timely with their salary.

It is similar to the credit traps some people fall into with their regular credit cards, but in this case people would not even need to apply for one.

[franky1]

they should rename it posses now pay ASAP

customer is not "buying it now" they just to take it home..
they should pay it off asap to ensure they dont incur any high interests or penalties

as for the shop/merchant
they get the full price from the loan company. plus a small referrer/affiliate commission ontop

the loan company is not much at risk
small claims court of a $1k phone can turn into the customer paying $3k in loan repayments or court fines. so the loan company breaks even.. sooner or later

[Poker Player]

Well, I will differ from the answers I have seen so far. This is a credit garbage that stimulates you to spend more, to be a credit addict that makes companies rich instead of making you rich. Unless you are one of the tiny minority that is able to use credit to get rich, the best thing you can do is stay away from all that junk. Pay with cash, don't buy things you can't afford, pre-save, invest and reinvest the profits.

[Gyfts]

These are just microloans that are done between consumer and merchant without involving larger banks. There are probably banks behind this that sponsor the program and give part of the interest the consumer pays over to the merchant, but it isn't the traditional mortgage or car loan debt burden. It's often predatory, high interest rates if the consumer misses a payment and people that aren't great with their finances are more inclined to take on loans that eventually pile.

Is it worth taking a loan for low ticket items that you're forced to pay interest on?

[Rruchi man]

Since then she has been thinking, who really benefits from the Buy Now, Pay Later (BNPL) -  the customer,  the company or the BNPL vendor(third-party credit specialists that manage the BNPL program)?

Everyone benefits, Your friend who is the customer, the BNPL vendor, and even the producers of the product.

The customer benefits because it is a convenient payment plan since they cannot to pay for what they want at once.

The BNPL vendor benefits, because he is meeting up with his sales quota and making his profit with more customers he get.

The producers of the product because their product is selling.

[Zilon]

The buyer needs a phone asap but don't have the complete money to pay for it and the merchant decides to sell it to the buyer using (BNPL), the phone is configured in to halt key functionalities for each month the buyers fails to pay and as long has the buyers keeps her own part of the deal she has full access to her phone until she clears off her debt. I will simply say both parties are benefiting from each other. The BNPL company is not directly involved in the deal because the only work based on how the customer threat the loan after receiving the phone which is not fully hers until she is done offsetting her debt

[karabiber]

Buy now pay later financing deals allow consumers to pay over time with no interest charges. It's a logical thing. It is possible to be approved for this type of financing, even if you are deprived of other loan options because of your low credit rating. BNPL loans do not increase your credit card debt and normally do not affect your credit score. The downside is that buying BNPL and paying it back also prevents you from building a good credit score. You also miss out on the benefits that credit cards offer. Like reward points and cash back. Things can get complicated if you want to return an item you purchased with BNPL. However, using BNPL in an inflationary environment is profitable.

[inthelongrun]

Buy now, pay later is actually a good concept. It should be beneficial to all parties. Of course, this is business, if people aren't well-aware and disciplined with their expenses then they will suffer the burden of paying the interest. We should be using the BNPL only if it is very important. If the phone is broken and there is no money to buy another one with cash then that is the time BNPL should be used. But still, avoid the expensive ones.

Personally, I will not use this BNPL, I prefer to pay cash even if it is a downgrade to the item I like to buy.

[Haunebu]

It's a win-win situation for the customer, vendor and the platform basically. Personally, I have purchased a lot of products of different price ranges over time using this particular scheme successfully.

I believe that this is the best modern loan scheme these days since it's very, very easy to purchase stuff quickly from popular sites like Amazon etc without worrying about the current bank balance.

Explosion in the popularity of this scheme in recent times proves whatever I stated.

[Die_empty]

Last month a friend bought a phone from a merchant that offers Buy Now, Pay Later (BNPL) program. In fact it wasn't planned. Her phone had just gotten broken that morning and she had to get another one ASAP so as not to miss an important deal. She made initial deposit and then a repayment plan plus interests of 6months.

Okay, back to the main gist. If she fails to make repayment on the loan plus interest within the said date every month, her access to most of the functionalities on the device will be locked. Since then she has been thinking, who really benefits from the Buy Now, Pay Later (BNPL) -  the customer,  the company or the BNPL vendor(third-party credit specialists that manage the BNPL program)?

In my country this Buy Now, Pay Later (BNPL) program is called easy buy. The buyer doesn't have bulk money to pay for the phone at once but this package grants him the opportunity of owning a phone. That's the customer's benefit. The company that offers the service makes money from the interest and the sells of its goods.  

Well, I will differ from the answers I have seen so far. This is a credit garbage that stimulates you to spend more, to be a credit addict that makes companies rich instead of making you rich. Unless you are one of the tiny minority that is able to use credit to get rich, the best thing you can do is stay away from all that junk. Pay with cash, don't buy things you can't afford, pre-save, invest and reinvest the profits.

I am not a supporter of buying goods on credit or taking loans for any reason even if it would be used for investment. But according to OP, his friend needs the phone urgently to enable her take advantage of a profitable opportunity. It is possible that the benefit of the business she needs the phone for outweighs the consequences of the credit facilities. I know of people that would loose huge amount of money if they don't have access to their phone for few days. It would be wrong to buy or get a phone on credit just for pleasure.    

[CryptoPanda]

I am familiar with the BNPL concept, I think all the parties involved are well compensated for their roles. Some customers find BNPL more appealing than paying instantly for the service ( which I don’t think it’s necessary, if you can afford it, then pay immediately). I don’t see the big economical advantage of BNPL for the customer, the interest may be higher if the repayment plan is longer than 3months so it’s best to keep a payment plan of 3 months or less in order not to incur more expenses.

[Stedsm]

In any case, the BNPL (Buy Now Pay Later) credit providing company profits from each of the situations as follow:

1. If a user opts for this service, he needs to pay processing charges that is attached to the loan amount in total, so BNPL company will at least receive this fee if that user keeps paying on time.

2. If a user fails to miss one or more instalments, he/she is entitled to that bounce charge each time a lack of repayment takes place for any specific month.

3. If a user denies to pay completely, BNPL company will send their employees to either seize the bought item or some other item of the home (if somehow the buyer sold that bought item), so to recover from the losses.

[virasisog]

We have this kind of program offered on different shopping platforms in our country. It's helpful to consumers during emergencies because we can purchase our necessities with minimal interest. I think if your friend will be a responsible payer, she will not have to face hard consequences in the future. Debt is still debt so we should still be a responsible borrowers. If she loaned two phones then she should save enough to pay her debt so she can purchase something again in case needed.

[so98nn]

Okay, back to the main gist. If she fails to make repayment on the loan plus interest within the said date every month, her access to most of the functionalities on the device will be locked. Since then she has been thinking, who really benefits from the Buy Now, Pay Later (BNPL) -  the customer,  the company or the BNPL vendor(third-party credit specialists that manage the BNPL program)?

Not funny. Those who do not understand what exactly BNPL is and how it works then they should not really use it. BNPL is not offered by any third services out of the blue. The funding is provided by major finance companies and banks to the third party services who are "agents" and get commission for bringing such potential customers.

These all services are linked to or traced back to your CIBIL!!

That's most critical part of your life if you know what it is. If she misses payment then her status will turn to defaulter and same will reflect in her CIBIL report.

Missed a small repayment of phone? No issues, CIBIL got you covered. Now, the day comes when she wants to buy her dream house and go to the bank for loan application. Oops, it just got rejected, know why? Well because she missed repayment on BNPL!!

That's why not funny.

And as far as recovery is considered its insured by reserve banks. That's entirely different book subject.

[Fortify]

Last month a friend bought a phone from a merchant that offers Buy Now, Pay Later (BNPL) program. In fact it wasn't planned. Her phone had just gotten broken that morning and she had to get another one ASAP so as not to miss an important deal. She made initial deposit and then a repayment plan plus interests of 6months.

Before I go on, what is Buy Now, Pay Later (BNPL)?

A buy now, pay later plan (BNPL) is a loan offered to a customer at the point of sale so they can purchase merchandise on credit but without a credit card. Popular options include Shop Pay Installments from Shopify, Affirm, Afterpay, Sezzle, PayPal, and Klarna. Many will run an instant soft credit check on the customer (the type that doesn’t affect your credit score), and then release funds for a point-of-sale loan. Customers have different options for paying off the loan balance, which typically depend on the company used and the amount borrowed; some payment options incur interest, but others do not, and some companies charge late fees or fees for missed payments. BNPL companies may offset the lack of interest charged to the consumer with a fee that they charge the retailer.

Okay, back to the main gist. If she fails to make repayment on the loan plus interest within the said date every month, her access to most of the functionalities on the device will be locked. Since then she has been thinking, who really benefits from the Buy Now, Pay Later (BNPL) -  the customer,  the company or the BNPL vendor(third-party credit specialists that manage the BNPL program)?

You give three choices and try to engineer the answer that only one can be the "winner" in this situation, however all three parties can benefit from this arrangement. The customer (your friend) got to purchase a phone immediately when she apparently did not have credit to buy one outright, the loan company was able to benefit because they made a (hopefully) small interest rate for agreeing to be an intermediary party who shoulders some of the financial risk and the phone manufacturer benefits from this setup because they're able to sell additional phones while another party takes on most of the risk. It's a mutually beneficial arrangement, as long as the interest rate and phone price are not jacked up too high. This goes to show the benefit of having an "emergency fund" for cases like this instead of having to rely on borrowed money.

[doomloop]

in plain view, it is the customer who benefits if they don't make payments they get the product for free, but this will boomerang at a later time, it can be said to be fraud in transactions,
However, if payments are made regularly, it is the party that provides funds in the transaction (BNPL vendor) who benefits. not plafrom

The OP's friend might be thinking the same way. She thinks that if she can't pay the BNPL provider will just only block her or delete her in their database but she didn't think of what can happen next. Pretty sure that the BNPL provider are going to report her on the authorities. If she won't settle her bills then something bad will happen with her.

If the BNPL customer are prompt of paying their debts then both the platform/shop and the BNPL provider are going to get benefits. This is where they earn money. Although this BNPL thing sounds cool and some of us may think they are useful, I think I won't still use them. I better buy my stuff using my own money as that can give me a peace of mind.

[Silberman]

Well, I will differ from the answers I have seen so far. This is a credit garbage that stimulates you to spend more, to be a credit addict that makes companies rich instead of making you rich. Unless you are one of the tiny minority that is able to use credit to get rich, the best thing you can do is stay away from all that junk. Pay with cash, don't buy things you can't afford, pre-save, invest and reinvest the profits.

This is what I think as well, I understand there are assets which are very expensive that can be difficult to buy with cash, like a house, but everything else should always be paid with cash, and if we do not have it available then we need to delay that purchase until we do, after all a great deal of the purchases people make are impulsive purchases, so by the time they actually get the cash to buy the item they wanted they have already found a way to do this for free or find a cheaper alternative, saving themselves money every month which then can be allocated to something they truly need or to invest in some good long term assets.