A first-time buyer must go through the KYC procedure on the provider’s platform. Buy Now Pay Later suppliers to employ analytics to get insights into buyer purchasing behavior and determine creditworthiness. These Services can be used to make a down payment and then pay for goods in installments.
What is BNPL (Buy Now Pay Later)?
Buy now pay later (BNPL) finance allows customers to purchase something now but pay for it later in installments over an interest-free period. The BNPL provider pays the merchant in full on the buyer’s behalf.
How Does BNPL Work?
Assume you select a BNPL facility and have a credit limit of Rs. 100,000, and wish to buy items costing Rs. 75,000. Simply utilize the BNPL limit to complete the transaction. When you make the purchase, the total price will be debited from your available credit limit, and you will not be required to pay anything out of pocket.
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However, after the lender (BNPL Provider) has made a payment on your behalf, you must reimburse the lender within a certain time limit. You can now return the funds in EMIs or a single lump-sum payment. The primary benefit is that BNPL payments have a low or no interest rate.
How is the BNPL Credit Limit Decided?
Providers utilize a variety of algorithms to analyze the user’s spending behavior and then set a restriction. The credit limit supplied by BNPL may also differ depending on the supplier; for example, Flipkart offers a seamless checkout experience for up to Rs. 10,000 via their BNPL services, while Zest Money and other BNPL lenders offer consumers up to a customizable maximum of Rs. 60,000.
Benefits of BNPL (Buy Now Pay Later):
- BNPL accepts orders from customers with limited financial resources.
- Customers with no credit score can create a solid credit history even if they do not have a credit card.
- If your BNPL provider reveals your account activity to credit agencies, making regular payments will help you build a solid credit history.
- People who are ordinarily ineligible for credit cards can also use the BNPL service.
- Customers are charged a reduced interest rate for late payments as compared to credit cards.
- It provides an excellent user experience.
Is Buy Now Pay Later Financing Right for Business?
This popular financing option enables consumers to finance smaller purchases over time with more confidence in their ability to pay them off without incurring the additional interest charges associated with credit cards. As a result, there is a high level of demand (to no surprise).
Product Pricing: Consider your product costs while considering whether BNPL is suitable for you. Some lenders set a minimum loan amount and only provide payment options for higher-priced or larger-ticket items. If your primary product offering is pricy, a BNPL solution may help break down payments, making your things more accessible to your customers.
Consumer and Merchant Costs: BNPL financing companies generate money by charging fees to both shops and customers like credit card companies. Most point-of-sale financing providers do not charge clients explicit interest and penalties, such as late fees.
However, depending on the supplier, some may impose an interest cost or a flat fee for late payments. BNPL financiers, on the other hand, are more forthcoming, with fees, rates, and payment schedules frequently specified. Taking buy now pay later payments is similar to accepting credit card payments in that retailers must pay a fee(s) to complete a sale.
Things to Consider Before Opting for Buy Now Pay Later Service:
Many organizations, including Addi, Affirm, Afterpay, Apple, Commonwealth Bank of Australia, Klarna, and Affirm, provide buy now and pay later finance on purchases made from participating retailers.
Convenience: The mobility of BPNL items is the most significant advantage. To use WooCommerce, for example, just download the app, sign in, check your spending limit, and begin transacting. The application process is straightforward, and Capital Float is granted swiftly. After completing a short KYC procedure, the credit amount is immediately available for purchase on the merchant’s website.
No upfront payment: You may either buy now and pay later with BPNL or pay now and divide it into EMIs. After pay, payments contain a 15-day grace period. However, the amount used to purchase is divided in to installments. In some situations, if your payment is divided into EMIs, you may or may not be required to pay interest.
The credit limit you are offered: Compared to credit cards, the credit limit with this type of financing is fairly low. Unlike credit cards, which provide credit limits of up to three times your gross monthly income, BNPL provides credit limits based on your monthly average balance in your bank account. This may not be the ideal option if you desire a higher credit limit.
Range of acceptance: Not all retailers accept BNPL Service. It is only legal to do so on the internet and at high-end retail places. We must study the conditions and evaluate what benefits are accessible to us before adopting the service. We may approve it if it is a good BNPL program.
What kind of interest rate is available: Before deciding on a BPNL service, it is essential to understand if the interest rate is fixed or dependent on the amount of the transaction.
Repayment options: Before deciding on the service, we need to look at the financing options. Is it possible to pay in advance, or are there payment plans available? If we want to close the credit line sooner, we must first find out if there is a pre-closure charge.
Additional discounts and rewards: If the BNPL program is tied to a certain merchant or seller, do we receive any further discounts or incentives for utilizing that BNPL payment option? We should also examine to see whether there are any benefits to signing up for the BNPL option.
Comparison with credit cards: Credit cards let you convert purchases into monthly EMIs, which many but not all BNPL suppliers provide. It’s also a good idea to think about any additional expenses that could be hidden in the tiny print. Most credit cards include both onboarding and yearly fees. Bank-dominated BNPL providers, on the other hand, do not impose processing fees lightly.
Should You Opt for Buy Now or Pay Later Service?
BNPL, like credit cards, provides a period of interest-free credit with the possibility of converting to an equal monthly payment (EMI) if the lender permits it. Before entering into a transaction, it is critical to understand the terms and conditions.
The interest-free term is longer than most credit card offers. Some lenders provide conditions similar to those given by credit card companies. Credit cards are commonly accepted, and many companies take BNPL. Alternatives to BNPL are frequently free of expenditures such as membership and yearly fees.
Another contrast between credit cards and BNPL programs is the qualification requirements. Not everyone has access to a credit card. On the other hand, the majority of consumers will almost certainly select the BNPL choice.
The concept of purchasing now and paying later is that customers may receive what they need immediately while still having time to pay for it later. Buy now pay later; finance may be enticing if you are unable or unwilling to pay for anything in full. These loans extend your credit without charging high-interest rates but with a repayment plan. So you don’t wind up in debt.