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What is Buy Now Pay Later?

Buy Now Pay Later also known as BNPL is a form of consumer lending with the present version introduced in 2012. BNPL allows consumers easier access to online purchases through installment plans. During the pandemic as online shopping became the norm these programs like BNPL gained popularity. BNPL platforms are embedded as a payment option when choosing your payment options during online checkout.

Typical BNPL Programs

Lenders do not charge the consumer interest, covering their interest and risk by taking a commission from the seller. The consumer may be charged a processing fee and the risk of non-payment is taken by the lender based on the consumer’s credit. Loan amounts are typically around $1,000.

Alternatives to BNPL

Alternatives to BNPL, which is based on enabling the payment options at the point of sale with a guaranteed decision in a few minutes, include outright purchases by the consumer, credit cards, personal loans, etc. 

These generally require planning or pre-authorization.

Players in BNPL

Some lenders offering BNPL are:

  • Affirm
  • Klarna
  • Afterpay
  • Stripe
  • Paypal

As with every type of lending, each has its advantages and disadvantages.

The advantages of BNPL are:

  • Allowing consumers to make purchasing decisions quickly with installment plans.
  • Enabling credit for consumers with limited access to credit facilities.
  • No advance sign-up or credit history required.
  • Merchants make it easier for their customers to purchase.

The disadvantages of BNPL are:

  • Consumers may take on too much debt.
  • Defaults could attract high interest-rates,
  • Defaults may be reported to credit bureaus.
  • BNPL may be brought under lending oversight to consumers.

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