Is BNPL a good or a bad idea?

Buying now and paying later is a conversation that consistently pops up in discussions referencing fintech solutions.

So, then the question becomes, why is BNPL good and why is it bad? There are ample reasonings on both ends of the argument. Generally speaking, the answer depends more on the person utilizing the offer, not the offer itself. Digital finance experts at Star have an easy way to understand the nuances associated with BNPL services. Let’s break down the spending habits and personalities of those utilizing such an offer:

The Savers

Buying now and paying later is an excellent idea for anyone who is well versed in basic budgeting and finance practices. The type of person that would benefit from BNPL would be someone who is used to using debt to their benefit, meaning even when they’re spending, they’re saving in some way. We’ll call these people The Savers.

This person likely has a credit score in the 800s, has many miles available due to their avid credit card use, and frequently benefits from the rewards points that credit lines and cards offer them. Such a person might use this offer to move their debt around or for the mere convenience of it. In short, The Saver would ultimately benefit from BNPL because they are the consumer who doesn’t need it.

The Spenders

Now there’s the other type of consumer: The Spender. The Spender is someone who likely overuses credit, perhaps running balances closer to their limit. Spenders are not likely to budget frequently, thus they are often fans of alternative payment options. This person might live paycheck to paycheck, with little room for savings. That said, they might not be able to pay off their full debt every month.

Their relationship with money tends to be more erratic, where they accumulate debt and pay the minimum balance on debts, keeping everything afloat but still keeping balances higher than a Saver would. The credit score of a spender is probably mid-range. For a person in this consumer category, BNPL is not the best idea because they likely need the offer to get the item.

Why BNPL is Good

BNPL is a good option for those who are looking to better manage their cash flows, especially if they have the ability to allocate extra funds and a consistent flow of income. Payment plans are also a great alternative payment option for anyone who is in the market for a big purchase but doesn’t necessarily want to disturb their regular cash flow to get it.

Sometimes BNPL options come with competitive benefits, such as 0% APR on financing or lower price points, which make them attractive. If a person manages their money properly, BNPL can serve as a way to maintain an already thoughtfully planned budget.

Why BNPL is Bad

For the consumer who is less likely to keep track of a monthly budget or spending pattern, BNPL options can be a slippery financial slope. While the offers do often accompany attractive benefits, such as lower APR or lower monthly installments, if they are not fully paid off by the allotted time––there can be trouble. It’s always best to read the fine print and make sure that you’re responsible for the possible fees or interest that will accrue while you use buy now pay later (BNPL) services.

This option would not be good for someone without consistent income, as the new installment under a BNPL does require a person to keep up with payments in addition to existing obligations. Failure to do so would have a negative impact on one’s credit score, which nobody wants!

In Conclusion, Know Your Debt

Most professionals who work in the digital finance industry know that it is possible to use debt to one’s advantage. There are many successful accounts of consumers using BNPL for large purchases such as furniture, vehicles, or travel bookings. The ultimate goal of the “buy now, pay later” method is to ensure that every consumer has frictionless financial services.

So, the next time you’re considering an installment plan, have a look at your bank account and your budget. If it makes sense, dive in! If you’re not sure, you can always look to the FinTech experts at Star. When it comes to Fintech solutions, our digital finance experts have a range of knowledge to share.