Part 1: What is Buy Now Pay Later, How Does BNPL Work, An Example, How to Use BNPL
Part 2: Advantages and Disadvantages, Should You Use Buy Now Pay Later
Introduction to Buy Now Pay Later (BNPL) for Kids and Teens
This video explains the concept of buy now pay later in a simple, concise way for kids and beginners. It could be used by kids & teens to learn about BNPL, or used as a money & personal finance resource by parents and teachers as part of a Financial Literacy course or K-12 curriculum.
Suitable for students from grade levels:
- Elementary School
- Middle School
- High School
The topics covered are:
- What is buy now pay later
- How does BNPL work – An example
- How can you use buy now pay later
- What are the advantages of buy now pay later
- Are there any disadvantages of BNPL
- Should you use buy now pay later
What is buy now pay later?
Buy now, pay later – or BNPL – is an increasingly popular way to make payments – especially for online purchases. It’s a type of short term financing, also known as a point of sale installment loan.
Instead of paying the full amount when the purchase is made, buy now pay later allows consumers to split up the purchase amount into smaller – usually interest free – installments, paid over time.
This facility is offered by third party buy now, pay later companies such as PayPal, Affirm, Klarna, Afterpay, etc.
How does BNPL work? Can you give me an example?
Often, buy now pay later uses a ‘pay in four’ model where the purchase is split up into four equal installments that are paid every two weeks – with the first one paid at the time of the purchase.
For example, if you’re buying a $200 microwave using BNPL at checkout, you would pay for the microwave in four interest-free installments of $50 each. You’ll pay $50 today and then another $50 every two weeks for six more weeks.
If the payments are not made on time or the balance is not paid in full before the interest-free period ends, BNPL vendors could charge late fees and interest.
How can I use buy now pay later?
Often, when checking out online at many major retailers, alongside the option to pay using debit or credit cards, you will see an option to break up the purchase into smaller installments. This is buy now, pay later.
If you choose to use this option, you will be asked to fill out a short form with your personal information like name, address, social security number, etc.
After that, the BPNL provider may run a soft credit check, and you will very likely be approved in a matter of seconds as long as you don’t have terrible credit.
Once approved, you’ll make the first payment, around 25% of the total purchase amount. You will then pay the BNPL balance in a series of interest-free installments – using a check, or by setting up automatic payments from your bank account, debit card, or credit card.
What are the advantages of buy now pay later?
The obvious advantage of buy now, pay later is that you can buy now but pay later. This way, even if you don’t have enough money, you can get the product right away while paying for it over time – without incurring added charges, thanks to interest free installments.
It is available at most major retailers and approval happens in a matter of seconds without the need for any elaborate application or documentation.
Unlike most credit cards or personal loans, you don’t need a good credit score to qualify for BNPL, making it a very convenient option for anyone with poor credit history.
And since it involves only a soft credit check, you can use buy now, pay later without taking a hit on your credit score.
Are there any disadvantages of BNPL?
The biggest con of BNPL is the risk of spending beyond your means.
Buy now, pay later tempts people into overspending on things they cannot afford, and wouldn’t have bought if they had to make the full payment up front. This practice can push people into debt for years to come.
If you miss or delay the payments, BNPL providers can charge late fees and report late payments to credit bureaus that would negatively impact your credit score.
And most interest-free installments are only valid for a limited time – if the full payment is not made within that time, the provider can charge very high interest – starting from the original purchase date.
Also, unlike credit cards, buy now pay later will not help you build credit or earn any rewards. They don’t offer consumer protection if your purchase is defective or a scam.
Returns can also be complicated for purchases made through buy now, pay later.
Should I use buy now, pay later?
While BNPL seems like a convenient and appealing way to buy something you can’t otherwise afford, it’s very easy to get carried away.
If you are already struggling to pay your bills, living paycheck to paycheck or don’t have an emergency fund, you should absolutely avoid buy now, pay later.
If you currently don’t have enough money for a purchase, you shouldn’t be making it in the first place! Instead, set aside money regularly until you have enough to cover a purchase in full.
So unless you are paying for an absolute necessity or an emergency, and are sure you will be able to pay the installments on time, you should stay far away from buy now pay later.