The concept of Buy Now, Pay Later (BNPL) applications is straightforward – make purchases instantly and defer payment, often without interest. During festive seasons, these apps attract users with discounts and convenient one-tap transactions, making it appear as an effortless way to access funds. However, according to Abhishek Kumar, a Sebi-registered investment adviser and the founder of Sahaj Money, the potential risks associated with BNPL services may not be immediately apparent.
Kumar compared BNPL to offering oneself a sweet treat, emphasizing that the true implications may only become evident when the bill arrives. He shared a real-life scenario where a user utilized five BNPL platforms during Diwali, accumulating a total debt of Rs 85,000. Initially manageable with small instalments and zero interest, the situation escalated when a missed payment resulted in a substantial late fee, negatively impacting the user’s credit score and leading to an unexpected debt burden.
Despite the allure of zero interest promotions, many BNPL offers feature interest-free periods that eventually expire, subjecting users to interest charges akin to traditional loans. Kumar advised consumers to carefully review the terms post-promotional period to avoid surprises.
Moreover, hidden costs such as processing fees, convenience charges, and penalties for payment delays or failures may accumulate silently, catching users off guard. Kumar highlighted the importance of understanding the potential additional charges associated with BNPL services to prevent unexpected financial burdens and credit score repercussions.
Furthermore, auto-debit arrangements for payments can pose risks if account balances are insufficient, resulting in failed transactions and penalties. Kumar recommended vigilance in monitoring due dates and ensuring adequate funds to avoid payment issues.
While BNPL platforms offer varying credit limits, users should exercise caution and not mistake these limits as permissions to overspend. Kumar stressed that the approved limit represents the maximum borrowing capacity, not an invitation to spend recklessly.
One of the primary dangers of BNPL lies in its seamless and casual nature, which can mask the seriousness of borrowing. The absence of extensive paperwork and the simplicity of making purchases with a few taps may create an illusion of debt invisibility, leading to impulsive borrowing habits. Therefore, Kumar advised users to view BNPL as a financial tool for essential planned expenses rather than a crutch for unplanned purchases or bridging financial gaps between paydays.