Pay later services, also known as “buy now, pay later” (BNPL) options, have gained popularity in India in recent years. These services allow consumers to purchase goods or services without paying upfront, with the agreement to pay at a later date with added interest or fees. While they may seem like a convenient way to finance purchases, pay later services come with their own set of risks and drawbacks that can be harmful for consumers if they’re not aware of them. In this blog, we’ll explore the dark side of pay later services and provide tips for safely using them.
High Interest Rates and Fees
One major drawback of pay later services is the high interest rates and fees they charge. These fees can add up quickly, especially if the consumer is unable to pay off their balance on time. For example, let’s say a consumer uses a pay later service to finance a purchase of Rs. 10,000, with an interest rate of 20% per year and a repayment period of 6 months. If the consumer is unable to pay off the balance within the 6 month period, they will end up paying an additional Rs. 1,666 in interest and fees. This is significantly higher than the interest rates charged by credit cards, making pay later services a costly option.
Limited Payment Options
Pay later services often have limited payment options, which can make it difficult for consumers to pay off their balances. Some services only allow consumers to make payments through a specific app or website, which can be inconvenient if the consumer doesn’t have access to a computer or smartphone. This can also make it harder for consumers to keep track of their payments and ensure that they’re on time.
Impact on Credit Score
Using pay later services can also have a negative impact on a consumer’s credit score. Late or missed payments can result in a lower credit score, which can make it harder for the consumer to borrow money or get approved for credit in the future.
Tips for Safely Using Pay Later Services
Despite the risks and drawbacks, it’s possible for consumers to use pay later services safely if they’re aware of the potential dangers. Here are a few tips to help you do so:
- Read the Fine Print: Before using a pay later service, it’s important to carefully read and understand the terms and conditions. Make sure you know what fees and interest rates you’ll be charged, and how you’ll be expected to pay off your balance.
- Compare Prices: If you’re considering using a pay later service to finance a purchase, it’s a good idea to compare prices with other financing options. Credit cards and personal loans might offer lower interest rates and fees, so it’s worth checking to see if one of these options might be a better fit for you.
- Pay Off Your Balance On Time: To avoid incurring high fees and damaging your credit score, it’s important to pay off your balance on time. Set reminders for yourself and make sure to pay at least the minimum amount due each month.
- Use Pay Later Services Sparingly: Finally, it’s a good idea to use pay later services sparingly, and only for purchases that you truly need. These services can be tempting, but it’s important to remember that they come with risks and drawbacks that you should be aware of before using them.
Case Studies
To illustrate the dangers of pay later services, let’s look at a few case studies:
Case 1: A consumer uses a pay later service to finance a Rs. 15,000 purchase, with a repayment period of 6 months and an interest rate of 25% per year. If the consumer is unable to pay off the balance within the 6 month period, they will end up paying an additional Rs. 2,500 in interest and fees.
Case 2: A consumer uses a pay later service to finance a Rs. 20,000 purchase, with a repayment period of 12 months and an interest rate of 30% per year. If the consumer misses a payment or is unable to pay off the balance within the 12 month period, they will end up paying an additional Rs. 6,000 in interest and fees.
Case 3: A consumer uses a pay later service to finance a Rs. 25,000 purchase, with a repayment period of 18 months and an interest rate of 35% per year. If the consumer misses multiple payments or is unable to pay off the balance within the 18 month period, they will end up paying an additional Rs. 10,500 in interest and fees.
As these case studies show, the high interest rates and fees charged by pay later services can make them a costly option for consumers. It’s important to carefully consider whether or not a pay later service is the right choice for you, and to be aware of the potential risks and drawbacks before using them.
Conclusion
Pay later services might seem like a convenient and hassle-free way to finance purchases, but they come with their own set of risks and drawbacks that consumers should be aware of. High interest rates and fees, limited payment options, and the potential impact on credit scores can all make these services a risky proposition for Indian consumers. While it’s possible to use pay later services safely, it’s important to carefully read and understand the terms and conditions, compare prices with other financing options, pay off your balance on time, and use these services sparingly. By being aware of the potential dangers of pay later services, you can make informed decisions about whether or not they’re the right choice for you.
