Dapio Blog

As the BNPL revolution marches on, is extra caution required?

Buy now pay later is the latest juggernaut to hit the payments industry. Where yesterday’s innovations saw improvements in the way people pay, today it’s all about offering flexibility in when people can pay. The likes of Klarna, Zip, and Afterpay have spearheaded something of a sea change in customer’s expectations, with companies forced to jump on board, or else risk losing clients.

In our latest article, we wanted to champion the rise of such customer freedoms, while providing a gentle reminder about some of the risks involved in BNPL payments.

I’ve been offered zero interest - so what’s the harm?

It’s true. Financing that dream purchase has become easier than before, and in the days of interest-free repayments - super accessible too! With such ease and convenience, it’s easy to lose track of the idea of needing to repay at all! Payments deferred seem like payments avoided.

But to prevent saddling yourself with insupportable debt, even if simply cashing out on the latest designer footwear, it’s important to take precautions for every purchase you make. Before you decide on a buy now, pay later option to finance your transaction, you should ask yourself the following questions:

‘Is the purchase necessary’?

The dopamine hit of shopping can be infectious, but it can also be damaging from a financial perspective. Before your latest impulse buy, try to rationalise things. Ask yourself if the item is needed, or if not - is it budgeted for? If you might struggle to support the purchase in future months, then perhaps wait a little while longer before you click ‘buy’. That way, it’ll be even more rewarding!

Is BNPL my only option?

It’s easy to get carried away with the idea of Buy Now, Pay Later. Instant gratification can be a hell of a drug. But it’s important not to rely on it as a no.1 payment solution. Sure, it can help you meet your pressing financial requirements, but it shouldn’t be the preferred option, particularly if it’s difficult to keep track of monthly outgoings.

Can I make the payments on time?

Despite the ease and flexibility of BNPL, it’s important to remember that payment deadlines exist, and missing them could have an impact on your ability to get credit in the future. It’s vital to project a future payment timeline, and then to find out if you can afford to include such debt repayments on top of existing ones.

In general, it’s often better to pay off purchases in full, and not to have a loan hanging over your head. It’s easy to plan for, and it demonstrates a degree of financial responsibility that will stand you in good stead for your financial goals. Just as saving and investing goals exist, spending goals exist too. And it’s important to make sure you know what you’re getting into before adopting what can seem like a helpful shortcut.

You never quite know what the future will hold. You may lose your job, or experience some financial setback which might impact your ability to make repayments. It’s therefore necessary to make some allowance for the events you can’t predict. That way, you’ll be able to reward your future self with a healthy credit balance.

Our verdict

While BNPL technology is changing the game for payments, it’s important to temper your enthusiasm for deferred payments with sound financial planning. Good decision making is the basis of all financial security. And financial security is the basis for a confident future.

As with all forms of debt, interest-free or not, BNPL providers have a responsibility to ensure their customers are aware of the impact of failed repayments, and to educate their customers about the risks associated with such finance options.

To help get a picture of what everyday consumers think about BNPL, the FCA have released an interesting transcript demonstrating the range of consumer opinion. Click here to read more.