Buy Now, Pay Later Is Always A Bad Idea

We are living in unprecedented times. The COVID-19 lockdown has brought the economy to a halt and is likely to affect our jobs and incomes. 

Surprisingly, this experience has also taught us that we can leave within our means if we want to and that we can actually survive without buying things on EMI or running up huge bills on our credit cards. 

Apart from personal loans and credit cards, there is another product that has gained popularity in recent times- ‘the buy now pay later’ apps. 

Buy now pay later - as an idea is not new. With credit cards we get the same advantage. “The new careless ‘buy now pay later' payment options available at various online merchants at checkout have both convenience and risks attached to it. The ease of use makes people ignore the terms and conditions which are attached to it. People get lured at zero cost credit facility highlighted by these fintech firms,” says Vineet Patawari, co-founder of stock analytic app StockEdge and financial market learning portal Elearnmarkets. 

In fine prints which are mostly ignored, they mention that zero cost is applicable if you repay in a limited time, say 15 days. “Going beyond that will cost you moderate to heavy interest and in certain cases, late payment charges too. Most of these platforms don't highlight interest rates transparently. Hence, before using the option make sure when and how much interest you will be charged and if there are other charges like late fee, etc. Involved,” he adds. 

All is well until you pay in time. But trouble starts when you pay late. You might have to shell out interest and other charges. This has high chances of impacting your credit score negatively. 

“If one is using such apps, it should be primarily for the ease of payment online because of such apps. This should be accompanied by self imposed discipline of timely repayment. The repayments should be done within the first 15 days. If the payment cycle is missed, make subsequent payment without any delay. Always use financial prudence of making purchases well within your paying capacity i.e. money in your bank account,”says Patawari. 

When you have used such an app you will be sent messages and alerts when the due date has arrived. Also, you will receive calls that remind you that your payment is due. It is important to pay it off as soon as you can. 

Late payments can also affect your credit score. Says Patavari, “What is mostly not revealed to borrowers is that a bad payment history can impact their credit scores in certain cases where such payment delays or failures are reported to credit bureaus like CIBIL and thus negatively impacting their credit score. Missing payments or making late payments are the biggest factor affecting one's credit score.” Regular late payment can also blacklist the user from the app. In the long run when if you need a more serious loan like home loan, other financial institutions like banks will first study the credit score to see your financial behaviour. Hence it is always advisable to make your payments on time or carefully prioritizing your purchase, so as not to affect your credit score.