Paying in installments can make you feel like you can afford more, but it may lead to overspending, says our guest.
.jpg?itok=Rk6yAREG "Money Talks Podcast: The overspending trap of Buy Now, Pay Later plans")
From big-ticket items to daily expenses, the Buy Now, Pay Later scheme has gained traction among consumers for its convenience and flexibility. But do consumers fully understand the risks involved?
Associate Professor Pearpilai Jutasompakorn from the Singapore Institute of Technology breaks down the pros and cons of the scheme with Andrea Heng in this week’s episode of Money Talks.
Here is an excerpt from the conversation:
Andrea Heng, host:
So for people who do need to rely quite a bit on BNPL (Buy Now, Pay Later), what are the dangers or risks that they may not be aware of?
Associate Professor Pearpilai Jutasompakorn, SIT:
The structure of BNPL (is such that) you spread out (and) split (the payments) into four, six, 12 installments. It seems like the installment is much smaller than the actual amount that you would have (to pay) upfront.
It can lead to an impression of affordability to many of us. So I think when people perceive the goods to be very affordable, then there is a tendency for them to actually overspend.
The downside of this is overspending on the goods. And that can also lead to overconsumption of credits. We know that right now we have a code of conduct for BNPL players where there’s a cap of S$2,000 per provider but nothing is stopping a consumer from going and buying from three or four BNPL providers.
Andrea:
That’s S$2000 maximum times four merchants – that’s S$8,000.
Pearpilai:
In a way, people can actually (start) loan stacking. They can actually take BNPL from multiple providers, and that can be in conjunction (with) credit card loans or any other personal loans that they might have.
So I think when we look at the downside of this, we probably cannot just look at BNPL alone. We probably have to look at the aggregate level of debt that a person has.
Andrea:
Yeah, I think that’s something that we often forget, right? Because we’re putting something on BNPL and then, oh wait, I have other stuff that I am supposed to pay for as well.
Pearpilai:
And these two factors can lead to financial strain on a person. If you think about the stress that a person would have for all the (other) obligations, not only BNPL, probably mortgage loans, personal loan and other type of loans, it can really add up.
