With the growing popularity of Buy Now, Pay Later (BNPL) loans, millennials and Gen-Z are finding themselves overspending on non-essentials and spiralling into debt. Damage control via a more responsible way of spending is absolutely crucial.
First things first, what are Buy Now, Pay Later (BNPL) loans?
The new generation of borrowers are being courted by a new form of credit. With record-high inflation driving up prices of daily essentials, coupled with the economic backlash from the ongoing pandemic, many found themselves relying on alternative forms of credit to make ends meet – including BNPL loans.
Touted as the revolution in the way we shop online, BNPL lets you make a purchase but pay for it at a later time, usually over a series of small instalments and added interest (if applicable). You will usually see BNPL payment plans when you shop online at major retailers and stores. Traditional Credit Card lenders are not far behind.
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Despite its positive aspects, they also tend to shrink the appearance of big-ticket purchases due to lack of upfront payment, consequently validating impulse purchases. A missed payment on BNPL loans may result in the accumulation of late fees and additional interest.
While BNPL has been heralded as a godsend, it can be risky since it encourages you to buy more than you can afford. This is a cause for concern as the younger generation may be amassing substantial amounts of debt rapidly without clearly understanding the terms. It is now more important than ever to emphasise the importance of budgeting and responsible spending.
Millennials and Gen-Z are increasingly looking for flexible modes of payment that allow them to pay back at their convenience. BNPL loans offer an additional line of credit that gives them just that.
Many from the Millennial and Gen Z generation are often on a not-so-sturdy financial footing, which can strongly influence the payment methods they opt for. However, there are several aspects to consider when deciding whether to choose a BNPL loan.
If you are already struggling to make bill payments or lack an emergency fund to rely on, consider opting out of Buy Now, Pay Later loans. With the convenience it offers, it is easier to overspend on unwarranted purchases. If you miss a payment due to your financial situation, you may incur late fees, which will in turn hurt your Credit Score.
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Before you sign up for a BNPL loan, make sure you tick these three points off this checklist.
Although Buy Now, Pay Later services are tempting, you must always ensure you have backup – additional funds to pay off your loan instalments. Plan your budget in advance. Review your monthly expenses and ensure you are not spending more than you earn.
Spend only on essential expenses
Opting for credit is faster and more effortless than it has ever been, but impulse buying is not necessarily a good thing, although it may seem harmless. At the end of the month, it will be a different story. It leaves you dreading the due date for your first instalment.
Use BNPL only for essential expenses. Although the payment plan may seem low-cost overall, you are still taking on debt. Also, ensure you opt for a BNPL payment plan with zero interest or at least a minimal one. This will lower your monthly payments and make it easier for you to make payments on time without affecting your financial footprint.
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Focus on your financial goals
Did you know BNPL can help you build your Credit Score? Using BNPL responsibly can help boost your score and positively impact your credit history. It can be a fantastic way of helping the younger generation build their Credit Scores. Be careful though, delinquent payments or missed payments can do more harm than good.
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Straying from their budget will eventually make Millennials and Gen-Z risky borrowers of the future. The bottom line, it all boils down to responsible spending. Initially, it may seem like you have it all under control, but your financial future heavily relies on how smartly and carefully you manage your finances with this additional line of credit.
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