Using Buying Now, Pay Later (BNPL) for Diwali, Dussehra, and Dhanteras online shopping? Are you aware of these 5 risks?

Buy Now, Pay Later (BNPL) can make online shopping for Diwali, Dussehra, and Dhanteras more convenient, but it carries risks. Understand 5 key concerns, including overspending, late payment charges, credit score damage and debt accumulation, before choosing BNPL. Read on to learn more.

The festive season brings lucrative online shopping offers, deals, and opportunities on electronics, smartphones, home appliances, clothing, and jewellery. Buy Now, Pay Later (BNPL) services allow shoppers to purchase products and services immediately and pay later.

These payments are either made in instalments or by a specified due date, as per the terms and conditions of the purchase agreement.

Now it is clear that BNPL services can offer individual purchasers and customers comfort, ease and convenience. Still, it can also encourage overspending and create repayment complications if it is utilised without strategic planning.

That is why, before opting for BNPL for Diwali, Dussehra, or Dhanteras shopping, it is prudent for aspiring borrowers to clearly understand the basics of BNPL, acknowledge the possible complications and challenges this scheme entails, and consider the following five risks. The complete list is discussed below for your reference:

5 risks of using BNPL for festive shopping

1. Possibility of overspending: As BNPL helps reduce the immediate repayment burden, aspiring shoppers may end up buying more than they can afford. The key aspect of timely repayments might be overlooked. It can also happen that multiple small purchases can add up to a substantial bill that might be very difficult to sustain and manage effectively in the future.

2. Late payment charges may increase costs: Missing out on a repayment deadline or due date can attract financial problems such as late fees, fines, penalties and other applicable expenses. These additional expenses can increase the overall cost of the purchase. That is why, before proceeding with the BNPL option, do check with the provider's repayment terms and conditions.

3. Credit score might be impacted adversely: Missing payments or defaults can adversely impact an individual's credit score and overall credit profile. It could also make future borrowing more difficult and expensive. It can also result in serious legal ramifications if the issue is not resolved amicably.

4. Difficult to manage multiple repayment obligations may arise: When BNPL is used consistently across several shopping platforms, it can make it harder to track due dates, payment deadlines and outstanding amounts properly. Overlapping repayments can lead to missed due dates and strain short-term financial planning and monthly budgets.

5. Possibility of rapid debt accumulation: Becoming habitual of BNPL and repeatedly relying on it for discretionary purposes can result in creating a cycle of debt and borrowing, particularly if you use other credit and debt facilities to meet repayment obligations. Ensure such a situation is avoided before proceeding with the BNPL option.

How to use BNPL responsibly

Therefore, it is clear that before opting for BNPL, you should check your repayment potential. Are you in a position to repay the debt you are going to take on without any financial strain?

Then check the repayment options, schedule, applicable charges, interest costs, and consequences of missing payments. Make sure that at any cost, you can comfortably and seamlessly repay the amount from your regular income without taking on additional debt.

In summary, the BNPL option can be useful when repayments are manageable and strategically planned in advance. Still, as a matter of rule, festive discounts should not encourage reckless and unnecessary spending.

Furthermore, a borrower should set a shopping budget, prioritise essential purchases, have clarity of thought, and opt for a payment method that suits their finances. The objective should be to plan finances properly and enjoy the festivities without carrying avoidable debt into the months ahead.