Buy Now Pay Later schemes could prove to be a boon for the younger generation in the short-term, but could become a hazard to their long-term financial health if they are not careful with managing their debt obligations on time
Buy Now Pay Later (BNPL) schemes have attracted a large number of Gen Z individuals because of the convenience they offer in splurging on their needs and wants without having to pay for it at the time of purchase. They are essentially short-term loans that allow customers to buy products or services with the condition that they can pay for it later.
The BNPL scheme also comes with no component of interest or additional charges, which means that the instalments do not carry any additional payment besides the actual cost.
At the time of making a purchase, the buyer can select the ‘pay later’ option integrated with the shopping platform. In some scenarios, the platform could also redirect them to the BNPL platforms integrated with the site, or third-party app to complete the process.
In other cases, the BNPL platforms may also allow buyers to borrow and make the purchase through one-time payment. Simpl, LazyPay and Slice are some of the numerous platforms available in India that lets customers borrow money for instant payments and pay off the loan over several instalments without having to pay any interest or fee if they repay on time.
While BNPL schemes could be a boon in the short-term, it could lead to long-term financial mismanagement if one is not disciplined.
BNPL is very popular with Gen Z for a variety of reasons.
Instant Gratification: BNPL caters to their want for instant gratification. Users are allowed to buy high-priced items, such as electronics, fashion, or travel services without waiting to save up for them.
No Credit Checks: BNPL services do not require checking of credit scores, unlike regular loans or credit cards, which makes them accessible to younger users who might not have an established credit record yet.
Flexibility: The repayment structure is quite easy and helps buyers manage big purchases easily, which make them a favourable option for individuals with a very constrained income.
There are many hidden dangers with BNPL which can lead to a debt trap if one is spendthrift or not disciplined with one’s borrowing and repaying habits.
Accrued Debt: Since repayments are paid in tranches over time, the user might not realise how much debt he or she has accumulated. Many consumers fall into the trap of making multiple purchases over various platforms, which snowball into a huge debt.
Interest Charges And Penalties: Most BNPL providers describe their products as interest-free. But when the instalments are not paid by the due date, there will be costs that may run into a tidy sum. Says Sucheta Halder, 23, a young working professional based in New Delhi: “BNPL often feels like a blessing, which allows me to make purchases without the immediate stress of checking my bank balance. It’s like having a safety net, until reality kicks in. Soon, I’m staring at a bill that feels much larger than anticipated, and if I miss the deadline, those extra fees for late payments will hit even harder. The convenience quickly turns into a burden, reminding me that the freedom BNPL offers can come at a steep cost if I’m not careful.”
Buying Too Much: BNPL can lead to impulse buying. With instalment payments perceived to be within the reach, Gen Z users might be spending much more than they can actually afford, and put themselves under potential stress later.
Consumer Protection: Whereas credit cards offer protection against frauds and a dispute redressal mechanism, BNPL services are not as secure and have the potential to be more susceptible to problems with vendors or services.
Keeping Track Of Expenses: Very often, it becomes harrowing to keep track of all the expenses and unpaid amounts. Most platforms claim they have a simple interface to track the due payments easily, but managing unpaid expenses can be very stressful at a young age while maintaining a small budget. Says Namita Sen, 21, a college student from Kolkata: “I have used BNPL while shopping online, but after a point, it gets difficult to keep track of every payment. It becomes stressful when you have to pay them off.”
BNPL can prove helpful if used sensibly; however, Gen Z needs to know how to manage this responsibly.
Set A Budget: BNPL should be treated just like any other form of debt. So, ensure that you can make all payments without missing due dates by setting a budget.
Limit Usage: The primary step of avoiding unmanageable debt is to limit the number of transactions and to use BNPL for planned purchases, rather than for impulsive buying.
Track Payments: By tracking each instalment, you will avoid late fees and penalties. This would eventually become easier if the due payments are less.
Use Savings: If possible, use savings or wait until you can buy something with your savings since it will not carry any debt.
BNPL services are highly convenient and very flexible for young people, but they have some hidden risk factors, and these could lead to a debt cycle and an underlying financial stress. Users need to have the knowledge about the risks and make a habit of proper spending so as not to lose control and get trapped in a vicious debt trap. BNPL could be a panacea for any short-term loan requirement but could easily turn into a slow poison that could be detrimental to one’s long-term financial health.