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Buy now Pay later: What is it and should you do it?

By Hari Bala Krishnan 8th December 2022

With uncertainties looming ahead and soaring inflation, consumers as well as businesses are facing unique challenges. Consumers are looking for any sort of monetary relief they can get. One such offer which is lucrative for consumers and businesses is Buy Now Pay Later (BNPL).

A recent survey by Adobe showed that this Black Friday most buyers opted for Buy Now Pay Later option. Buyers are preferring BNPL over other financing options due to many reasons. These include ease of approval process and lack of interest charges.

What is Buy Now Pay Later

What is Buy Now Pay Later?

A Buy Now Pay Later option lets you spread out your bill over the course of several months, making it attractive especially for Gen Z shoppers. This option is particularly useful for buyers in big ticket purchases like TV, sofa or high value electronics. This form of payment mode is popular in Europe and gaining traction in U.S. and parts of Asia in the recent past.

Experts opine that an increasing number of youngsters and people living paycheck to paycheck are relying on the buy now pay later scheme for their festive shopping. In most countries the BNPL scheme doesn’t result in a hard enquiry in their credit report. A soft enquiry is sufficient for the scheme provider to know the credit score of the consumer and the approval process.

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Insights into the financing method

Shoppers are increasingly using the Buy Now Pay Later scheme to finance even lower priced gifts and goods according to a Salesforce survey. 

Anuj Nayar, finance ehealth officer at Lending Club opines that one of the worst things consumers do is financing their purchases on a credit card. It results in a hefty interest charge on Equated Monthly Installment (EMIs).

Interest charges across lending categories have gone up due to Fed’s interest rate hikes. A higher interest rate poses a challenge for retail businesses as it results in reduction of cash circulation in the economy. 

Pic credit: www.pexels.com

According to a LendingClub report, 37% of American shoppers plan to use financing options such as personal loans, credit cards and Buy Now Pay Later this holiday season Year over Year increase of almost 9%.

In the credit card model, merchants are charged a transaction fee when they accept card payments and consumers are charged interest over EMIs. However, the Buy Now Pay Later scheme is mostly interest free for buyers.

Both Black Friday and Cyber Monday have witnessed an increase in online spends by buyers. According to a report by the Consumer Financial Protection Bureau, from 2019 to 2021, the volume of Buy Now Pay Later loans have seen a steep increase by 1,092% from $2 billion in 2019 to $24.2 billion in 2021.

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Pros for local businesses

Buy Now Pay Later scheme offers unique benefits to small business owners to boost sales this holiday season.

  • By offering interest free pay later schemes, local businesses can gain an edge over e-commerce giants. Despite huge discounts offered by e-commerce giants, consumers prefer spreading their payments rather than paying upfront.
  • Buy Now Pay Later schemes allow retailers to convince their buyers and boost the sale of high value goods as the buyers are not required to make huge upfront payments.
  • By offering the Buy Now Pay Later option, retailers can attract buyers who don’t own a credit card and are keen on shopping for high value goods.
Pic credit: www.pexels.com

Cons of Buy Now Pay Later

Buy Now Pay Later comes with its own negatives similar to other financing options.

  • Buy Now Pay Later scheme offers 0% interest rates to the buyers. As a compensation to this, financing companies often charge a steep fee from the retailers which may at times go as high as 8%.
  • A significant section of buyers are wary of BNPL schemes faring that they might get into a debt trap by overspending. Retailers can help buyers overcome this challenge by educating them on the benefits of the products.
  • Major financing partners are still reluctant to partner with small businesses as they risk accumulating bad debts.


With increase in sales across retail segments this holiday season so far, it surely is a great idea for local businesses to consider Buy Now Pay Later.

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