The Buy Now, Pay Later and should I use it?

What is the BNPL? It stands for the buy now and pay later (ex. in four installments in next few months). For some reason, it feels more attractive to some customers. You might wonder isn’t this same as credit card? Maybe it is, maybe not. It does add a layer on top of the credit card. Here we’ll chat about a bit how to use this as one strategy and what pitfall you should be aware of.

Why has it worked?

I personally have been debating how successful this model is. And I used this type of strategy every once a while, and have accumulated some knowledges from the lesson I learned. No doubt, it is a two edge sword, and if you use this strategy everyday, sooner than later you will get yourself into a big trouble.

So why does it work sometimes? And when it worked, it worked really well. But why? Isn’t the downside of this strategy obvious enough?

The risk of this strategy is that after you made the purchase without paying the money, how would you make sure you have the next four installments ready when the time comes? When the time comes, if you happen to have the installment, you will be thrilled to believe you made the good call doing BNPL.

Investment model

When you made the purchase at the first place, you are betting against the odds that your investment on this purchase would unfold to be fruitful before the payment is due. For instance, you purchased a computer and used it for a month, you really enjoyed it since it’s quite helpful for your college work.

However after the first month, the problem arrives. First, you need to have your installment ready. You might think this is a trivial task, but this is how lots of people get crushed. Imagine you buy everything with BNPL, by the end of month, a $25 dollar payment multiples by 100 still could shoot the moon for $2500. Therefore this BNPL strategy has a limit. It might give you the power to defer things a bit, but your physical ceiling can not be fooled to be increased any in theory. You might think you are smart to dodge a bullet at one point, but when all bullets come to your direction, that’s a different story.

Second, which not many people take into consideration is that, your investment has to be unfolded as it planned. If your purchased computer is there collecting dust, then even $25 payment isn’t going to justify that. After four installments, most likely you can’t return the item you purchased. So it can be a total loss if you are not careful. Purchasing the item without BNPL still carry this risk, but you will not be fooled to not realize you made the wrong purchase. In the BNPL case, you might think you haven’t paid for it yet, therefore postponing of declaring the loss.

Risk

So the risk could be un-proportionally high depending on how you normally manages your daily life. If you are not that active, you should avoid doing this BNPL entirely, instead just pay in full (with or without the credit card). Deferring the payments just won’t help you much if you are really concerning about hitting the limit of your credit card. You can’t become rich because of BNPL.

On the other hand, the risk comes with equal gain, as the Wall street always use to justify their actions. If the (potential) gain is high, four month buffer could fake your image of nailing the deal today, while giving you extra time to absorb the potential outcome. Say the outcome turns out to be bad, it gives you a bit more time to come up the rest of payments. So the buffer could be beneficial to give you a soft landing on the risk. It could make the risk a bit more bearable if managed well.

Conclusion

Buy now and pay later. It sounds very good on the front. But don’t forget you still need to pay the whole, so use this as a strategy wisely and rarely, only for the right reward.

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Fang Jin

Fang Jin

Front-end Engineer, book author of “Designing React Hooks the Right Way” sold at Amazon.