Introduction
Buy Now, Pay Later (BNPL) plans offer an alternative to credit cards. When online shopping, you may often be able to buy a product with the BNPL option at checkout.
BNPL splits up the payment for a product in equal installments, usually four installments, each occurring once every two weeks. BNPL loans may often be interest-free and give you access to a product after paying 25% of its total price upfront.
However, BNPL loans may have drawbacks as well. In this article, we will review the pros and cons of BNPL loans.
Pro: Interest-Free Loans
One of the main advantages of BNPL loans is that they may be interest-free. This obviously makes them more affordable compared to some high-interest credit products and services. However, missed or late payments may result in additional interest and fee charges, and not all BNPL loans are interest-free.
Con: Risk of Debt Stacking
The ease of access and increased purchasing power may lead to overspending and debt stacking. You may acquire multiple BNPL loans with multiple different providers, leading to a confusion of payment due dates, amounts, and terms and conditions. This may lead to excessive debt accumulation.
Pro: No Hard Credit Checks
Another big advantage of BNPL loans is that you may obtain them quickly and easily, without a hard credit check. There will be no impact on your credit score due to the absence of a hard credit pull. Subprime and near-prime borrowers may have an easier time obtaining BNPL loans over other types of credit products.
Con: Fewer Consumer Protections
The BNPL industry is still new, and there is less regulatory oversight. Therefore, consumers’ rights are not always protected, and BNPL providers may take advantage of consumers in pursuit of maximal profit.
Pro: Easy Approval
Obtaining a BNPL loan is usually quick and straightforward, accomplished with just a click of a button at checkout. It may take place entirely online, without a lengthy application process.
Con: May Impact Credit Score
As with other types of credit products and services, missed or late payments may negatively affect your credit score. Therefore, it’s imperative to ensure that you always have sufficient funds in your bank account to meet the necessary payment obligations on time.
Pro: Pay in Equal Installments
You can pay off your BNPL loan in equal installments, often without interest. If you stick with the payment schedule and don’t have overdrafts, you can expect a fairly straightforward repayment process.
Con: Risk of Overdrafts
However, if you don’t have sufficient funds in your bank account to cover each transaction on the given due date, you risk bank overdrafts and the associated charges and fees as well as a negative credit score impact.
Pro: Access to Higher-Ticket Items
Splitting up the payments gives you more purchasing power and the ability to access high-ticket items such as furniture or technology that you might not have been able to purchase by paying the full price upfront.
Con: Not Always Interest-Free
BNPL loans are not always interest-free. Therefore, it’s important to review the terms and conditions to ensure that there are no surprises down the road. Some consumers have found that their BNPL loans come with an interest rate, even though there was no warning to that effect at checkout.
Pro: Predictable Payment Plans
BNPL repayment often follows a predictable structure, such as pay-in-4, monthly payments, or deferred payment.
- Pay-in-4 – pay 25% of the total price upfront and the rest over equal installments, once every two weeks. There are four installments in total.
- Monthly – pay installments once every month over 3, 6, or 12 months.
- Deferred – pay part of the price upfront and the rest of the price in full after a deferment period of 30 to 90 days.
The predictability of the structure may keep the process relatively simple and straightforward.
Con: Hidden Fees
Due to the relative lack of regulatory oversight and potentially obscure terms and conditions, you may be surprised to find your BNPL loan has fees you were not aware of when you signed up. Therefore, it’s important to choose your BNPL loan carefully at checkout and review the terms and conditions.
The Bottom Line
BNPL loans may provide an appealing credit alternative to online shoppers, particularly those with lower credit scores. Like any credit product or service, BNPL loans come with their owns risks, so be wary.
If you run low on cash between paydays and need to cover immediate expenses, apply for an installment loan online via OntarioCASH. We don’t check your credit score or credit report during our online application process.
Additionally, to monitor your credit health, sign up for Credit Verify. It only takes a few minutes.
