Are BNPL schemes always a good idea — and could they actually be leading us towards financial disasters?
Generally speaking, upon opting for a BNPL scheme, you will be allowed to make your payment for a purchase by a specific date or within a specified period of time. This period will be determined as soon as you make the purchase itself.
For example, if you choose to go with a BNPL payment plan for a phone worth RM3600, you may be required to complete your payment for that phone within a year — usually through monthly instalments of RM300 that may or may not be subject to interest rate charges, depending on the BNPL agreement.
Now, you might be wondering if credit cards are actually a type of BNPL scheme since they seem somewhat similar. The answer to this, though, is no. While credit cards technically allow you to borrow money to make purchases, BNPL schemes do not involve such transfers of cash and are purely delayed payment plans for specific products.
These plans carry a few major benefits:
- Fast approvals. In comparison to credit cards and other loans, BNPL plans commonly have instant approvals as they are specific to a particular product — which means that the plan is made available to you literally the moment you choose it. You don’t have to fill out complicated forms or wait a few weeks for background checks to be performed before receiving approval.
- Help you prepare budgets. As the timeline for payments and the amount required for each payment is usually specified the very moment you agree to a BNPL plan, it’s much easier to build budgets and manage your finances to meet those payments. The timeline and amounts are usually fixed too, so you won’t have to stress yourself out over unforeseen changes.
- Good for emergencies. One of the most remarkable strengths of BNPL plans is that they allow you to cover necessary expenses during emergencies. For instance, if you urgently require an electronic appliance for your home, but don’t quite have the money to afford it just yet, going with a BNPL arrangement is a good idea.
- Your very own payment plan. BNPL schemes normally allow you to choose payment periods and amounts that work best for you. This means that you will be able to customise your BNPL plan to complement your current financial situation and make the payments for your purchase at a manageable pace.
“Eh, it seems like BNPL is very good. Everyone should just use it right?”
Not quite, and this is largely due to one major problem with the BNPL system: the temptation to spend money that you may not necessarily have.
In the absence of strong discipline when it comes to your spending habits, a scheme like BNPL offers you the opportunity to make purchases that you truly cannot afford at present, by playing on your hope that you will be able to afford them someday. These purchases include luxuries and wants, like new cars, electronic devices, or clothes; purchases that you do not necessarily need.
On the surface, this may not seem like a big deal. After all, all you have to do is opt for a longer payment period and find a way to meet those payments eventually in future, right?
True, this may work for one BNPL purchase. However, if you continue to make numerous BNPL purchases, you will also begin to accumulate debt — and high debt translates into a high risk of being unable to complete all your payments in due time, which could, in turn, earn you some severe legal troubles.
Additionally, sellers that allow buyers to use BNPL plans don't commonly ask buyers if they already have other BNPL agreements to pay for. This means that the responsibility of monitoring and keeping track of your BNPL accounts falls solely on your shoulders. There are no regulations in place. Unlike credit card that has max usury, or money lender with its cooldown periods, which limits systemic risk.
Is BNPL the way forward?
In the words of Spider-Man, “With great power, comes great responsibility.” The BNPL practice clearly gives us a great boost in our spending power — but, are we ready for the responsibilities that come with this boost?
Here’s our advice: feel free to use BNPL plans, but only for emergencies and necessities that you may not have enough money for at present. If entering a BNPL agreement is the only way for you to obtain something that you need urgently, then go ahead. Just make sure that you opt for a payment period and instalment amounts that you can manage!
If such a dire need isn’t present, then hold yourself back and save up for that purchase instead, because it’s always a good idea to spend money that you only truly have with you.
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