Buy Now, Pay Later (BNPL) = Personal Loans

Products with the “Buy Now, Pay Later” (BNPL) feature allow consumers to make payments by instalments rather than settling the bills upon consumption. As such, BNPL products are indeed unsecured personal loans, and we should be aware of their pros and cons before choosing them.

Many people have chosen to shop online during the pandemic, and technology firms and banks have introduced BNPL products in Hong Kong recently. These service providers join hands with merchants to offer the BNPL option, allowing customers to pay by instalments. While it means greater flexibility to consumers, the potential risks should not be overlooked.

As mentioned in the post recently published by the Hong Kong Monetary Authority, BNPL products are similar to unsecured personal loans in practice. Providers of BNPL products (such as technology firms, banks and other financial institutions) will make lump sum payments to the merchants on behalf of the customers and then collect the money from the customers by instalments. In other words, customers actually borrow money from the providers of the BNPL products. As such, they should be mindful of the following facts.

Fees or charges may be applicable to BNPL products marketed as “interest-free”. For example, some platforms may charge an administrative fee for late repayment according to the billing amount, and some may even suspend a user’s account and charge an unlock fee.

Non-bank BNPL platforms generally allow users to make repayments with a designated credit card. If a user fails to settle the credit card bill on time, late payment charge or interest may be imposed by the issuing bank, and the user’s personal credit rating may also be undermined.

Since BNPL platforms allow users to make a purchase without paying the total cost up front, it may lead to impulsive consumption and overspending. As more instalment payments will mean growing personal debt, when one fails to repay the bills, it may result in unmanageable debt.