BNPL: Beware of Spending Beyond Means

Did you know that over 80% of Buy Now Pay Later (BNPL) users earn less than RM3,000 monthly and face a higher risk of financial stress? Additionally, the trend of missing payments among its users has increased. Read on to learn more about this facility and how to use it wisely.

Buy Now, Pay Later: Convenience, Caution, and Considerations

Buy Now, Pay Later (BNPL) has gained prominence recently, reshaping how consumers approach purchases. This payment model allows individuals to acquire goods and services immediately and defer the payment over a specified period, often in installments.

BNPL provides a flexible payment method, allowing consumers to purchase without immediate financial burden. Many see BNPL as enabling them to access the item or services upfront while spreading the cost over manageable repayment periods.

BNPL is usually facilitated through online platforms and mobile applications and has become especially popular among the younger demographic, with statistics showing that about 44% of BNPL users are between 18 and 30 years old.

Typically, these plans can be opened from a bank or a merchant’s website such as Shopee SPayLater in a matter of minutes without impacting credit scores.

However, be mindful that quick approval processes and light credit checks make it easy for us to be impulsive and overspend.

Using buy now, pay later plans for a RM100 electronic appliance, another purchase of RM50 moisturizer, and a RM250 pair of shoes with a minimum payment of RM10 each, can lead us to underestimate how much we will owe. Users must be mindful of the terms and conditions involved, including the interest rates and fees associated with late payments.

An example of BNPL service in Malaysia is the SPayLater, which offers processing fees depending on your preferred payment plan, which is 1.25% per month for 3, 6, and 12-month installments.

Your SPayLater account will be temporarily frozen until the outstanding amount has been paid. To reactivate the account, users will be charged a late fee of RM10. While BNPL can be a valuable tool when used responsibly, individuals must assess their financial capacity and make informed decisions to avoid potential pitfalls.

Buy Now Pay Later and Dangers of Instant Gratification

BNPL services can be seen as a quick fix for those who prefer immediate rewards. With just a click of a button, they can easily purchase goods and services without the burden of immediate payment.

This approach appeals to the need for instant gratification – the ability to enjoy products without the prolonged wait associated with traditional payment methods.

On the flip side, delayed gratification involves resisting the immediate rewards to achieve more substantial, long-term goals. It involves exhibiting patience, discipline, and the willingness to endure a waiting period before reaping the rewards.

Key Considerations

1. Not to Overspend

To be sure, with any reward comes some level of risk, and if you struggle to stick to a budget, BNPL might encourage you to overspend because you think you need to pay only a small amount of debt over time. However, a payment as small as RM10 may accumulate to RM100 if you bought more than 10 items.

2. Paying Late Fees

You also face the risk of paying late fees if you forget to pay on time. The key is to think about the total cost of the purchase and ensure that you have the ability to pay the installment on time.

3. Only for Necessary Expenses

Consider the need and the want when deciding whether to use a BNPL payment plan or not. It is advisable to use BNPL only for necessary expenses, like a mattress for your home or a computer for work or school, or otherwise, you might accidentally accumulate debt beyond your means.

4. Remember that BNPL is a Debt

Though the plan may seem simple and low-cost, you’re still taking on debt, and it’s rarely a good idea to go into debt for a nonessential item. Prioritize to pay using cash as long as you can, and try to avoid buying unnecessary things simply because you can rely on BNPL.

5. Zero to Minimal Interest

Choose BNPL plan with zero to minimal interest. This will lower your monthly payments and make it easier for you to pay back the loan on time.

6. Current Financial Standing

If you’re struggling to pay your bills and still do not have an emergency fund, steer clear of this plan. Use BNPL only if you are confident you have the ability to pay without sacrificing your budget for an investment or any other long-term commitment.

If this plan is used diligently, it will assist you in investing as you don’t have to pay in full for any purchase. The money that should be used to pay for the item can be invested. However, this will only work if you are confident and have a strong will to discipline yourself to invest.

Using BNPL to Your Advantage

If BNPL is used wisely, it can help you buy necessary goods and, at the same time, allow you to invest or fulfill other commitments.

This is because you do not need to make full payment for the purchase. Let's say you buy a laptop worth RM2,000; through BNPL's 12-month plan, you only need to pay RM166 (and a monthly processing fee) for the first month instead of spending RM2,000 if you pay in cash.

Money that should have been used to make a full payment can be used to invest to receive dividends or fulfill existing commitments.

This way, you don't face extreme financial pressure to buy important items and can manage your finances better.

However, this method only positively affects your finances if you are disciplined and always manage your finances wisely.

Therefore, make sure you only use BNPL to buy essential items. In fact, if there is an option and you are eligible to use a credit card, you can choose to use the interest-free facility for financing options for 3, 6, or 12 months.

It would help if you remembered that as long as the financing facility is a loan, you must be disciplined and make payments within the interest-free or set period.

The more accessible access to BNPL facilities, the easier it is for you to spend beyond your means. Therefore, always make a selective purchase and don't just follow your passion.

Debt is the cause of many financial problems; once entangled, it may be difficult for you to get out of it.

Article Highlights

1. Understand the terms and conditions of BNPL before making a purchase decision because BNPL charges such as processing and late payment charges.

2. BNPL is a debt. Therefore, include BNPL installment payments in the monthly budget to ensure you will pay without fail

3. Use Responsibly. Only use BNPL to finance essential goods or services.