Are you tired of waiting for your next payday before making a purchase? Or are you hesitant to spend a lump sum of money on a single item? In Singapore, you can now opt for Buy Now Pay Later (BNPL) schemes offered by various merchants such as Atome, GrabPay Later and Hoolah. These schemes allow you to pay for your purchases over a certain period of time, instead of in full upfront.
While BNPL schemes offer convenience and flexibility, there are also potential downsides to consider. According to current estimates, the value of BNPL transactions in 2020 will be roughly $114 million, a minuscule fraction of the $92 billion in credit and debit card payments over the same year. In this article, we will discuss the pros and cons of BNPL in Singapore.
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What is Buy Now Pay Later (BNPL)?
Buy Now Pay Later (BNPL) is a payment option that allows customers to purchase goods or services without paying the full amount upfront. Instead, customers can choose to pay for their purchases in instalments over a certain period of time. This payment option is becoming increasingly popular in Singapore, with more merchants offering BNPL schemes to attract customers.
How Does BNPL Work in Singapore?
In Singapore, BNPL schemes are typically offered by third-party companies that partner with merchants. These third-party companies provide the financing for the purchases, while the merchants offer the BNPL option at the point of sale. Customers can choose to pay for their purchases over a period of several weeks or months, depending on the terms of the scheme. Most of these providers have a minimum age of 18 and accept payments via credit or debit cards. This means that 18-year-olds having a debit card (which comes standard with a bank account) will be allowed to use BNPL services.
Pros of BNPL
One of the biggest advantages of BNPL schemes is affordability. Customers can purchase products and services without having to pay the full amount upfront, which can be particularly useful for large purchases that may be difficult to afford in one payment. By spreading the payments over several months, customers can make purchases that they may not have otherwise been able to afford. For example, a student may use a BNPL scheme to purchase a laptop for school, allowing them to spread the cost over several months instead of paying the full amount upfront.
BNPL schemes also offer convenience. Customers can purchase products and services online or in-store and apply for a BNPL scheme in just a few clicks. The approval process is usually quick, and the payments are automatically deducted from the customer’s bank account on a set schedule. This makes it easy for customers to budget and plan their expenses. For example, a customer may use a BNPL scheme to purchase a new phone, knowing that they can make regular payments over several months without having to worry about missing a payment.
3. No Interest
Some BNPL schemes offer zero interest for a set period, which can be an attractive feature for customers. This means that customers can spread the cost of their purchases over several months without having to pay any additional interest charges. For example, a customer may use a BNPL scheme to purchase a new appliance, knowing that they can pay it off over six months without having to worry about interest charges.
Cons of BNPL
1. High-Interest Rates
One of the biggest downsides of BNPL schemes is high-interest rates. While some schemes offer zero interest for a set period, others charge high-interest rates that can add up quickly. It’s important to read the terms and conditions of the BNPL scheme carefully to understand the interest rates and fees that may apply. For example, a customer may use a BNPL scheme to purchase a new sofa, only to find out later that they will be charged a high-interest rate that increases the overall cost of the purchase.
2. Hidden Fees
In addition to high-interest rates, some BNPL schemes also come with hidden fees. These fees may include application fees, processing fees, or early termination fees. It’s important to read the terms and conditions carefully to understand the fees and charges that may apply. For example, a customer may use a BNPL scheme to purchase a new mattress, only to find out later that they will be charged an early termination fee if they pay off the balance early.
3. Late Payment Fees
If you miss a payment on your BNPL scheme, you may be charged a late payment fee. These fees can be quite high and can add up quickly if you miss multiple payments. It’s important to read the terms and conditions of your BNPL scheme carefully to understand the fees and charges that may apply.
4. Impulse Buying
BNPL schemes can make it easy to make impulse purchases. Because you do not have to pay the full amount upfront, it can be tempting to make purchases that you may not have otherwise made. This can lead to overspending and financial difficulties if you are not careful.
5. Debt Accumulation
BNPL schemes can also lead to debt accumulation if you do not manage your payments carefully. While it may be tempting to make purchases without having to pay the full amount upfront, it’s important to remember that you will have to pay the balance eventually. If you have multiple BNPL schemes and other debts, it can be easy to accumulate debt quickly and struggle to make the required payments.
Make Informed Financial Decisions
In conclusion, BNPL schemes offer several benefits, including affordability and convenience. However, they also come with potential downsides, including high-interest rates, hidden fees, and the risk of debt accumulation. If you are considering using a BNPL scheme, it’s important to read the terms and conditions carefully and consider your ability to make the required payments. While BNPL schemes can be a useful tool for managing your expenses, they should be used carefully and responsibly.
Is it safe to use BNPL schemes in Singapore?
Yes, BNPL schemes are generally safe to use in Singapore. However, it’s important to read the terms and conditions carefully and make sure you understand the fees and charges that may apply.
How can I avoid late payment fees on my BNPL scheme?
To avoid late payment fees, make sure you make your payments on time and in full. Set up automatic payments if possible to ensure that you don’t miss any payments.
Are BNPL schemes a good option for managing my expenses?
BNPL schemes can be a useful tool for managing your expenses, but they should be used carefully and responsibly. Make sure you understand the fees and charges that may apply and consider your ability to make the required payments before using a BNPL scheme.