Is "Buy Now, Pay Later" a Personal Loan?
Products with the "Buy Now, Pay Later" (BNPL) feature allow you to pay by instalments rather than making a full payment upon purchase. As it is equivalent to a loan offered by the BNPL platform that allows you to repay the money in instalments over time, you are actually making a purchase with borrowed money. As a healthy habit, you should always save before you spend. While BNPL sounds really attractive, you should understand the hidden charges, handling fees, and possible penalties before choosing this option so as to avoid any unnecessary financial burdens. You should also repay each instalment on time, and settle all charges before the due date to avoid late charges and interest. It is a good idea to set up a reminder or autopay instruction to prevent any hidden charges and to maintain your good credit score that is crucial for your future financial wellness. By using the BNPL feature responsibly, you can enjoy the convenience without worrying about any unnecessary financial risks.
Charges of BNPL
When choosing BNPL at checkout, you can usually choose to pay by instalments. While some platforms boast their "interest-free instalments" offer, it may involve some hidden charges:
|
Handling fee |
BNPL platforms may charge a handling fee for each transaction. You should note this additional cost before proceeding with the transaction. Always bear in mind that interest-free does not mean free of handling fee. |
| Late payment interest |
If you fail to make the repayment on time, late payment interest may be incurred. If the relevant BNPL instalment is billed on your credit card, the card’s overdue interest rate will apply on a revolving rate basis, so that the interest cost may surge, resulting in a heavy financial burden. |
| Late payment charge |
When you fail to make a payment by the due date, you may face a high late payment charge that will be added to the outstanding balance and interest may apply. Frequent late payments may result in multiple late payment charges and increase the balance. |
| Early repayment fee |
As some BNPL platforms may charge an early repayment fee even if you wish to settle all the instalments early. You should read the relevant terms and conditions carefully before choosing the BNPL offer. |
| Collection fee | When you fail to make the repayments for a prolonged period, some BNPL platforms may engage a debt collection agency to recover the debt. It may incur an additional collection fee, and affect your credit rating. |
Spend Smart with BNPL
As a smart consumer, you should protect yourself against any potential financial risks before using the BNPL service, and read all terms and conditions carefully to understand all fees and penalties. As BNPL may involve instalment loans, you may use the IFEC Borrowing and Debt Calculator to assess whether the BNPL instalments include interest or handling fees. You may also want to compare the repayment methods and charges of different BNPL platforms beforehand.
14 October 2024
