Online shopping has grown dramatically and retailers and payment portals have recognised the need to include people who do not have access to many payment options - those who don’t have access to credit cards or don’t want to use them.
Buy now, pay later (BNPL) is a product of this drive for inclusivity, and has experienced enormous growth since it launched originally in the US and Sweden.
It means exactly what it says: you can buy something today and pay it off later – typically in three or four instalments over a period of up to three months, without incurring any interest.
How does it work?
You choose a BNPL option at checkout (usually online, although some physical retailers are also offering these options). You register by providing a few personal details, the provider may do a quick credit check and you can receive approval in seconds.
You need to provide your bank account details (either a credit card or a debit card) and are given the instalment breakdown: the first instalment is paid immediately, and two or three more are scheduled at intervals of two weeks or a month apart.
You will be provided with the dates and will also receive a reminder shortly before each instalment is taken from your account, so you can make sure the funds are available.
As long as you stick to the payment plan you signed up to, there is no interest and no contract fee – the credit is free and you receive the goods immediately.
This payment option is a big step up from the well-established lay-buy system in terms of which your purchase was held for you until you had made full payment over a period of weeks or months.
Buy now pay later is predominantly an online option, but it is available at till points in the physical stores of some retail chains in South Africa, and is spreading rapidly with banks also providing these payment options.
Who benefits?
In theory, everyone does: the payment provider makes money by charging the retailer a percentage of each BNPL purchase; the retailer should be able to cover that cost through increased sales and more satisfied customers; and as a consumer you can buy something now and spread the payment out to take advantage of your future wage or salary payments.
BNPL options vary, particularly when it comes to high-priced items, but they usually allow for three or four instalments, either fortnightly over six weeks, or monthly over three months. Some provider longer instalment periods if you use your credit card and buy within your card's credit limit.
What happens if you don’t pay?
As with everything credit-related, there are pitfalls. If a scheduled payment cannot go through on the required date because you do not have sufficient funds available in the account to which 
you’ve linked the purchase (despite the reminder you will have been sent beforehand), a late payment fee and interest kicks in. Some providers offer a period of grace before applying these fees. And some then provide revolving credit, which can be costly.
You should know what the late payment fee and interest rate is when you choose to pay with this option so you know exactly what any default would cost you.
How does it work legally?
Most buy now pay later options are not structured to be a credit agreement with interest, and so for the purposes of the National Credit Act (NCA) they are not credit agreements as long as you pay as agreed.
The arrangement only becomes an incidental credit agreement if you fail to make the payments. In terms of the NCA, interest can then be charged at 2% a month, but a higher rate may be charged on an unpaid amount if this was agreed at the outset. Some providers charge regularly as long as the amount is outstanding.
Risk of overspending
Another risk of this easy-come, easy-go form of instant credit is that it is equally easy to sign up to more BNPL payments than you can afford.
Splitting the number on the price tag into smaller instalments makes the price seem more manageable, so you could be tempted to enter into more than one BNPL agreement with more than one retailer.
Although you provide some personal details, including your ID number and bank details, when you opt for a BNPL purchase there are none of the usual credit checks to ensure that you can afford the credit and have a good credit history, so there is nothing to stop you from over-extending yourself.
In fact, consumers may not think of BNPL as credit at all, especially if they are not made aware of the risk of interest.
No credit history
Another disadvantage of this payment option is that it doesn’t help to build a positive credit record on your credit report, since payments are not reported to the credit bureaux. Read more: What is my credit report?
But non-payment may be reported, especially if it happens more than once, so poor management of BNPL could damage your credit record.
To sum up: this is another payment innovation that offers legitimate benefits – in this case, convenience and access to short-term, interest-free credit when you really need it. As with all innovations though, it should be approached with eyes wide open.
