Buy Now Plans, Late Payment: Are They Really Worth It?

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In Singapore, more than
1.1 million people have used a Buy-Now, Pay-Later (BNPL) solution when purchasing something online or in stores. These plans allow you to buy things immediately and pay the bill in smaller monthly installments. While it’s tempting to get something you really want without paying for it all at once, there are always risks associated with paying off an incremental purchase. You might be wondering if these plans are really worth it. Below we have listed some pros and cons that you should consider when deciding whether or not to use a BNPL plan.

The good: these are inexpensive options for one-off payments

BNPL plans are mostly popular with online shoppers because you don’t have to pay the full price up front. This way, you avoid delaying your purchase until you’ve saved enough money (which can take weeks or even months). Moreover, BNPL plans are also attractive because they charge little or no interest and processing fees at all, and have near instant approval, allowing for a seamless shopping experience. Some companies, like To count, even offer cash back promotions if you make your payments on time.

Fees charged for Buy It Now and Pay Later plans

BNPL plans are a legitimate way to pay for something if you don’t have the funds right away. For example, you can buy a kitchen appliance, like a refrigerator, or a computer for work or school, without harming your bank account.

The bad: failure to pay could result in additional charges

As is often the case with other loans, failure to pay on time results in late fees. For example, Hoola charges between S $ 5 and S $ 15 in late payment fees, depending on how much you borrowed. While this may not seem like much at first, these are additional fees that you wouldn’t have to pay if you waited to purchase the entire item. In addition to additional charges, late payments may result in account termination. If you decide to make your purchases through BNPL, you should make sure to set aside funds that are dedicated to repaying the monthly payments. You should also avoid becoming too dependent on BNPL plans to the point of not being able to pay all the monthly payments.

Late fees charged for Buy It Now and Pay Later plans

Late fees charged for Buy It Now and Pay Later plans

The Ugly: What if I’m having trouble paying it back?

Unfortunately, BNPL has become so tempting to buyers that the Singapore Monetary Authority began to study the role of BNPL programs contributing to increasing debt. In fact, according to a recent Finder poll, 27% of Singaporeans who said they used a Buy Now Play Later program thought their financial situation was worse because of it. The allure of these types of payment options has caused people to buy more things on impulse and use up their budgets. Since you break your purchases down into smaller monthly payments, it’s harder to see how much you’ve actually spent, which can lead to mismanagement of finances.

Estimated cost of debt consolidation loan by bank

If you find yourself in a situation where it is difficult to make your monthly payments, you should discuss these concerns with a representative from BNPL. Some companies, like atom may allow you to extend your repayment date. If your debt is unmanageable, however, you may want to consider a debt consolidation plan, which consolidates all existing debt into one loan that you can repay. These typically charge interest rates of 2.77% to 5.75% per year and last up to 10 years.

How does BNPL compare to credit cards and personal loans?

You might be wondering how a BNPL plan compares to other forms of credit, like credit card. Basically, credit cards and BNPL both allow you to pay in advance, although credit cards give you a higher spending limit. Plus, credit cards will usually charge you a monthly payment based on the overall amount you spend (i.e., S $ 50 minimum or 3%) from your statement. On the other hand, BNPL plans are micro-loans for individual items that you purchase. In addition, BNPL payments are automatically withdrawn from your accounts. Although you can set up automatic withdrawals with a credit card, this is not the default.

Costs of traditional bank personal loans

Costs of traditional bank personal loans

Alternately, personal loans are best for larger projects and expenses, like wedding expenses or vacations. Indeed, taking out a loan means that you will only pay one monthly payment over the years, rather than using several BNPL plans for several expenses and losing track of them. However, they generally have higher interest rates than BNPL plans. In addition, to take out a personal loan in Singapore, you must have a minimum annual income of S $ 20,000 and borrow at least S $ 1,000. On the other hand, BNPL companies only require their users to have an address in Singapore, a Singapore issued bank card, and be 21 years of age or older.

BNPL may be a good option, but only if you can pay it back

If you need to buy an expensive item (like a work laptop) immediately but can’t afford full payment at checkout, then a BNPL plan might be a good option. Since BNPL plans often charge little to no processing fees and offer an interest-free period, you can manage your purchase in smaller, more digestible payments. These are also good options if you have a steady cash flow but maybe find yourself in a place where you want to reduce the credit you use in a particular month.

Alternatively, if you are looking to finance something large like a wedding or a renovation, then it will be worth taking out a personal loan. This gives you a lump sum to repay monthly. That said, BNPLs are not good for people who are chronically short of cash. Although it is tempting to shop around and pay only a small amount for your purchases each month, you are still required to repay the full amount. Failure to do so may result in penalties and default on payment. So, for impulse buys and financially out of reach items, the best financial decision is to wait until you can prepay what you want. This way, you won’t have to owe extra monthly payments and don’t risk going into debt.

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