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Buy Now, Pay Later: The Reverse Business Model!

by Brinda Goel
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A “buy now, pay later” option breaks up your entire purchase into a number of equal payments, the first of which is payable at checkout. 

It allows you to make a purchase and get it right away, but you can pay for it later, typically over a number of installments. Most big merchants offer this kind of payment plan, but whether or not you should utilize it depends upon the plan’s specifics and your financial circumstances. 

Although using a buy now, pay later plan can be a clever, low-interest strategy to spread out a cost, there are still hazards associated.

What is this Reverse Model? 

A “buy now, pay later” loan is an illustration of an installment loan. It divides the cost of your purchase into several equal payments, the first of which is due at checkout. The following payments will be deducted from the bank account, debit card, or credit card until the entire purchase is made.

Depending on the issuer, some of these programs may not charge any fees or interest at all.

If you check out online, you’ll frequently see BNPL financing options listed as an option. One-time virtual cards are available from providers for in-store purchases that may be downloaded through the provider’s mobile app, saved to your mobile wallet, and used at the register.

“Buy now, pay later” (also occasionally referred to as “BNPL”) refers to a scenario when a customer takes an item home and makes repayments over time. In earlier times, “Pay later” purchasing referred to the period of time following a purchase during which no payments were necessary and no curiosity was charged. However, after this period of interest-free borrowing, full payment was necessary; otherwise, interest was levied going back to the purchase date. The phrase “Shop now, pay later” was made popular by financial technology a new life, and modern incarnations are far more open regarding the costs and interest rates over the loan’s lifetime. 

Two categories of BNPL solutions exist:

Loan for merchant transaction fees – One kind of point-of-sale loan charges the merchant a fee for transactions rather than charging the customer any interest. Companies like Klarna, Splitit, or AfterPay provide this interest-free option.

The second kind of BNPL is a point-of-sale loan when the customer is given an immediate loan by an outside party.  The consumer can accept the item at that very moment but must pay extra, including interest. The vendor is not charged anything.

How Does this Work? 

You will have the opportunity to divide your total purchase into smaller payments throughout the checkout process rather than paying the entire balance. If you’re interested, you can apply right on the payment screen by completing a little form. Your full name, mailing address, e-mail, date of delivery, as well as phone number, and your Social Security number could be requested. You’ll also give a means of payment. The BNPL supplier may then quickly approve or reject your application after running a mile credit check that won’t affect your credit rating. Various factors determine approval, however, you can still be qualified even if your credit is poor or nonexistent. 

The plan you’re given will also differ depending on the supplier, although a lot of them employ the “pay-in-four” model, which divides the cost into four equal payments with the first one being due right away. The payments are spaced two weeks apart.

The Pros and Cons of BNPL!

There are several risks to consider before entering into a BNPL agreement.

Because BNPL financing is less strictly regulated than credit cards, you should first be aware of the repayment conditions to which you are consenting. Terms can differ greatly. For instance, some businesses could order that you pay the balance in two-week installments over the span of a month. Some companies may give you six, three, or additional while to complete the payment for your goods.

You may prepare for your payments in your budget by being aware of how they will operate. You can make certain that your payments are reasonable and made on time by doing this. If a payment is skipped under a buy-now-pay-later arrangement, late fees may be applied. 

Finally, consider how choosing a buy-now, pay-later loan may affect your ability to swap items you’ve purchased and the return procedures of the retailers. For instance, a retailer might give a return of the product, but you may not be able to end the buy-now-pay-later agreement until you can display proof that the item being returned was received and processed.

As previously indicated, buy-now-pay-later financing arrangements enable customers to make payments without incurring interest over time. And even if you’ve been turned down for other loan alternatives because of a bad credit score or a lack of credit history, it is still possible to get authorized for this kind of financing.

The Bottom Line

With BNPL loans, you can make purchases right away and pay things off over time at no interest. If you’re considering using a BNPL plan, be sure you are aware of all the terms so that you are going to able to make all the payments on time. Think about if the payments are controllable and the potential ramifications if you can’t.

Consider the advantages and disadvantages of BNPL in comparison to other choices, such as charge cards and private loans, before making a choice.

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