How Does Buy Now, Pay Later Work?
The service of buy now, pay later has multiple terms and conditions. However, generally, they are short-term loans with zero interest and fixed payments. One can use the BNPL app to purchase goods or use a credit card, one can utilize the BNPL option.
BNPL can be used to purchase at any participating retail outlet and opt for paying later at checkout. After approval by the participating outlet, a minimal down payment of 25% of the overall purchase can be made. The remaining amount can be paid usually within a few weeks or months with zero interest installments.
Customers can opt for auto-debit, for repaying their credit purchases via debit card, credit card, or bank account. Individuals can pay via cheque or bank transfer but per Consumer Financial Protection Bureau (CFPB) of the US allows consumers of BNPL to automatic payments only.
In India, this ‘buy now pay later’ system existed with the name “Udhar Khata” for decades and this system still exists in a few cities. At the local or ‘kirana’ stores, the shopkeeper manually keeps a record of purchases made on credit which would be paid on a later date by the customer. There are instances when we may run short of cash, but our expenses exceed. We need a gadget but do not have sufficient cash to purchase it. BNPL then comes to the rescue from this financial stress.
Generally, customers just need to choose the “buy now, pay later” option on the payment form when making a one-time purchase, and they will be taken to the provider’s website or mobile application to register or log in. Consumers decide whether to proceed with the purchase and accept the terms of the repayment plan, which usually include selecting between bi-weekly or monthly installments.
Businesses receive the whole amount upfront (less any costs) upon completion of the purchase. When customers pay on time, the buy now, pay later provider receives their installment payments straight from them, frequently without charging interest or other costs.