A long festive season translates into a sudden rise in your expenses – primarily unplanned. You may exceed your spending limit no matter how strong your resolve is to control the outgo. This story repeats every year, and no household is insulated from it. At times, expenses may go beyond what we expect, and that is when we need instant money. One of the financing options or schemes you may make use of is – Buy Now Pay Later (BNPL).
What is BNPL?
BNPL is a payment option where you can make a purchase and repay the borrowed money in instalments as per your chosen tenure. Many online merchants and FinTech firms offer BNPL facilities to customers as a convenient payment method. However, if you fail to repay the amount, which is a loan with no interest, your credit score may get adversely impacted, and the lender can charge you a late fee or levy a heavy penalty for payment delay.
BNPL is a short-term borrowing option. For instance, if you buy a brand-new mobile, say at Rs 40,000. You have Rs 10,000 to pay as a lump sum, and the tenure or repayment is six months; the rest is Rs 30,000; your EMI will be Rs 5,000.
Also Read: 5 smart ways to avoid overspending this festive season
Adhil Shetty, CEO, Bankbazaar.com, says, “Whenever borrowing money, it is essential to factor in your repayment tenure and charges such as processing fees, interest, and penalties. What’s borrowed needs to be repaid in a timely manner, else there would be credit score damage and financial stress. Go through the terms and conditions of the borrowing option before making a decision.”
When Can You Opt For BNPL?
* To Handle Festive Expenses
If your expenses are high, you may opt for BNPL. It might rescue you from any unnecessary financial stress.
* Unavoidable Purchase
If the product you want to buy is urgently needed, but you don’t have the required sum, you can use BNPL.
* No Existing Borrowing
If you have no burden of borrowing or your current loan repayment commitment is manageable, you may consider BNPL. Further, your short to medium-term cash flow should be adequate to take the extra burden of EMIs without impacting your monthly expenses.
Why Should You Not Opt for BNPL?
* Adequate Liquidity
If you can settle the amount at the time of purchase, you may not choose BNPL. It’s worth reminding that the borrowed money needs to be repaid.
* Non-Priority Purchase
Prioritisation in shopping is a must; otherwise, your expenses may go haywire, and it can financially unsettle you. If you can delay the purchase or wait, it’s better not to be in haste to buy goods through BNPL.
* Cash Flows Uncertainty
In the short to mid-term, cash flow management is essential while going for short-term borrowing. If you are unsure of cash flows in the next few months, which may hamper repayment, it would be wise to avoid taking BNPL loans.
These are some of the tips which can help you make wise decisions when you spend your money during the festive seasons. One must be prudent and borrow what can be repaid without financial stress later.
