It’s every shoppers dream to purchase an item and worry about the costs later. Add a no interest factor and you have the infamous BNPL mechanism. Buy Now Pay Later, as the name suggests, is a mechanism utilized by merchant companies that allows customers to purchase items and pay for them later (usually in installments). The practice dates back more than a century, but the best buy now, pay later sites only gained popularity after the pandemic in 2020.
It is quickly rising as a preferred option to shop online. It employs the concept of debt financing to enable customers to purchase what they desire without having to worry about their ability to do so right now.
Although this appears to be the same as the credit card method, there is one important distinction that makes all the difference in the world. Interest. BNPL plans provide an interest-free payment plan (for the majority of items) that may be extended for several months. When using credit cards, the topic of interest is a source of considerable concern. Aside from that, buyers do not need to be concerned about their credit score. The BNPL method does not employ a traditional credit score system. Businesses have developed a mechanism for evaluating purchasers on a different scale from the ones normally used.
The system works much the same way as most other buying services.
- Customers select the products they wish to purchase, which may be at retail stores or on the internet, and then select the Buy now, pay later option when asked for payment
- Businesses provide customers with alternatives from which to choose (Over a few weeks or months)
- The first payment is deducted in the form of a down payment and the rest will be taken up by the customer as debt
Advantages and Disadvantages
Customers enjoy a variety of advantages. The most evident is that customers may obtain any products they desire even if they cannot now afford them. If, for whatever reason, these customers want or need the items immediately, they do not have to resort to high-interest loans.
Which brings us to the main reason the BNPL system has been so popular with customers: the lack of interest rates on most items. Regular credit card users must pay exorbitant interest rates on purchases made on credit. They are only required to make a minimal payment each month but are otherwise free to leave their obligations outstanding. This debt will continue to earn interest for as long as it remains unpaid.
The BNPL system has emerged as an alternative for individuals who do not wish to bear the burden of high interest rates but wish to pay later for the items they require today. These loans are available to buyers with poor or no credit. Customers do not need to be concerned about their credit ratings because the system does not employ the traditional credit score method.
Businesses benefit greatly from this system, which is why we’ve seen a significant growth in the number of stores incorporating it as a payment option. Because of this arrangement, the clients they serve are less constrained by a lack of finances.
It is not all rainbows and unicorns though. Since the BNPL option is so easy to use, customers usually develop a higher tendency to buy items they will have difficulty paying for later (impulsive spending). They eventually have to miss out on some of their payments and this leads to a situation customers might not be aware of. Credit bureaus get word of the customer’s inability to repay their loans and this causes them to give them lower credit score ratings, which in turn reduces the ability of customers to get loans in the future. Another problem which comes with customers being unable to repay their loans is they are charged a penalty for every week they default on their repayments.
Best online buy now Pay later sites today
Afterpay is one of the most popular BNPL services, owing to its simplicity. With Afterpay, you must pay at least a quarter of the total amount upfront, with the remainder repaid in installments. It’s linked to a wide range of sellers, and when you buy a product, you’re given a randomly generated barcode, which is scanned buy the business retailer. It was founded in 2015, and it’s a company based in Sydney that operates in Australia, New Zealand, the United Kingdom, the European Union, Canada, and the United States.
One huge advantage of Afterpay is that it doesn’t use credit checks when you sign up. You must however have a debit or credit card ready to link to the account. Installments also have no interest rates, so customers usually aren’t concerned about their debts accumulating.
Afterpay’s income is derived from merchant fees, fixed transaction fees and commissions on top of late fees. Afterpay charges $10 if a customer fails to repay by the due date and $7 more is charged if another week passes by.
Similar to Afterpay, Splitit is a company that provides BNPL services without any additional interest fees.
It enables you to spread the complete amount using your credit card across many weeks. You can choose the duration of your repayment options, 3 months to 2 years. This autonomy you get can ease your mind and wallet in its convenience. A huge advantage splitit has is that it keeps your payments at a minimum. The option is built directly in its outlets. All you have to do is choose your item, select Splitit as your payment option, input your credit card information and pick up your goods. Similar to Afterpay, splitit does not require a credit check or application. It doesn’t charge any interest and even does not penalize late fees. However, Splitit has limited retail outlet partners and only accepts Visa and Mastercard.
Sezzle is another platform which tops the list. It is a company that has grown exponentially in recent years. It’s based in Minneapolis, Minnesota. Sezzle provides its services interest free and without running credit checks. They do however run soft checks to determine the payment plans available to customers. You have the option of paying off all your debt on their website. Sezzle has incorporated penalty fees if customers are late or default on their payments but sizzle has been kind enough to introduce grace periods. Sezzle is not usually available as an option at physical retail outlets, it specializes in providing its services on online platforms. Similar to the other BNPL services, Sezzle asks for a 25% down payment and the remaining additional payments bi-weekly. It also provides customers with the option to push payments for up to two weeks.
Perpay allows its users to purchase products and repay them over time through a simple and easy scheduled payment, with no fees or interest. Perpay is slightly different from other BNPL service providers in that you must meet the following requirements, among others, to become a Perpay member:
- Maintain good financial standing with all of your financial obligations.
- A minimum annual income of $15,000
- Functioning Mobile Phone
- Maintain active full-time employment
- Must be able to provide proof of 3 months on the job with your present employer
- Must not have declared bankruptcy …etc
If you meet these requirements, all you have to do is create a Perpay profile, get an estimated spending limit and start shopping. Some disadvantages which can be mentioned about prepay is that customers are required to provide personal information and all scheduled payments must be made through payroll direct deposit. Items are also not shipped until the first payment is made. Perpay is a very good option for customers who need extended repayment options and those with bad credit history. However, payments are only made through a direct deposit from your payroll.
Affirm is one of the greatest BNPL companies. It was founded by Max Levchin. Affirm offers a variety of services, including a savings account and a debit card that will be available in the near future. Buy-now-pay-later loans, which you apply for when making an online purchase, are the company’s major source of income. To do so, it works directly with retailers to customize loan options that may differ from one merchant to the next.
If you choose the Affirm payment option at checkout, Affirm will review your credit, payment history, and other factors to determine whether or not you will be approved for a loan.
If you’re approved, you’ll have the option of repaying your loan over three, six, or twelve months. However, depending on the retailer, the goods you’ve bought and your credit, your repayment options may vary.
When a merchant does not accept Affirm online you can use the Affirm virtual card, you can ask for on their site. You’ll input the details if you’re paying online, or you may load the card into Apple Pay or Google Pay and use it wherever they’re supported.
When you use Affirm to make a purchase, you always know exactly what you’re paying and when the payments will be completed. Many retailers accept Affirm as a payment method when you check out. If you’re unable to do that, you can still pay over a period by creating a credit card number or making purchases using the Affirm app.
Similar to the other BNPL services, Affirm doesn’t charge any late fees and you can make your purchases in store or online. However, some transactions charge interest and most actually require credit checks.
BNPL services are being incorporated into the vast majority of shops today, online or otherwise. They serve as great tools both for merchants and customers. Customers who wish to buy now and pay later have lots of good options to choose from depending on their specific needs. Some want these BNPL apps primarily because they want to avoid high interest rates, others want them because credit checks from regular credit card companies were too harsh and they preferred the soft credit checks of these BNPL service providers. Affirm is one of the highest rated and used by some of the most famous retail outlets in the city. Afterpay seems to be great for students’ needs and Splitit and Perpay are among the most widely used among those with poor credit.