AKPK Raises Awareness On ‘Buy Now, Pay Later’ (BNPL)

By Agensi Kaunseling dan Pengurusan Kredit (AKPK)

The rise of “Buy Now, Pay Later” (BNPL) schemes presents both opportunities and challenges for consumers. While BNPL offers convenience and flexibility in managing expenses, it also carries the risk of overspending and debt accumulation if not used responsibly.

AKPK acknowledges the potential risks associated with BNPL, where the ease of purchase can mask the long-term financial implications. This is especially concerning when Financial Minster II, Datuk Seri Amir Hamzah Azizan, in the Dewan Rakyat, revealed a surge of nearly 45% in BNPL transactions in just 6 months from the first half to the second half of 2024. Considering that the majority of BNPL active users are the younger population, AKPK is concerned that more BNPL users are vulnerable to unwise financial decisions.

Commenting on this issue, CEO of AKPK, Azaddin Ngah Tasir said, “This observation is

consistent with AKPK’s own research, indicating that a significant portion of consumers exhibited compulsive spending tendencies. While our findings revealed that approximately 3 out of 10 consumers demonstrated such behaviour, these tendencies were observed to be more prevalent among younger demographics. This  corroborated our research on money and mental health in which we found that individuals below 40 years of age experienced higher financial distress than individuals in the higher age bracket.”

“While BNPL provides a potential financial option, its perceived convenience hides the real cost. He added that underestimating repayments directly leads to financial risk and distress, turning it from a tool into a burden,” he added.

Impact of BNPL

It is important that financial consumers know the impact of BNPL schemes  on their finances:

• Increased Spending: While it offers flexibility to purchase necessary items that are unaffordable in a single payment, the deferred payment structure can encourage consumers to purchase more than they can afford, leading to a build-up of debt.
• Multiple Obligations: While it offers convenience by consolidating multiple purchases into a single payment or allowing for interest-free periods, managing multiple BNPL payments across different platforms can be challenging, increasing the risk of missed payments and late fees.
• Potential for Over-indebtedness: While it can provide a lifeline for managing short-term cash flow issues or unexpected expenses, especially in emergency situations, BNPL can exacerbate the financial difficulties of individuals who already have existing financial vulnerabilities, leading to over-indebtedness.

AKPK’s Advice and Solutions:

When it comes to credit purchases, AKPK empowers individuals to make sound financial decisions and achieve their financial goals through the 3P formula: Purpose, Payment Capacity, and Payment History.

1. Purpose: AKPK emphasises the importance of borrowing for beneficial and sustainable purposes to fulfil needs that provide long-term benefits, rather than satisfying temporary wants or frivolous lifestyle choices.

2. Payment Capacity: Individuals are encouraged to borrow according to their actual affordability, rather than solely based on the eligibility offered by financial institutions (or BNPL schemes, in this case). Questions like “How long is the repayment period?” and “Is my income stable throughout the credit term?” are crucial to assess whether the debt is manageable. Hence, individuals should assess their income, expenses, and existing debt obligations to determine their ability to repay before using BNPL schemes. It goes without saying that they should only purchase items that are within budget to ensure timely repayments.

3. Payment History: AKPK emphasises the importance of a solid repayment record. Maintaining a strong payment history, by meeting all payment obligations promptly and avoiding warnings from credit providers, is crucial for securing favourable financing terms. The cost of BNPL services varies significantly depending on the provider, payment terms, and adherence to the repayment schedule.

Here’s a breakdown of how expensive BNPL can become:

1. i) Late Fees: Missed payments typically incur late fees, which accumulate rapidly with each missed deadline.
2. ii) Interest Charges: While many BNPL services advertise “interest-free” periods (e.g. 30 days or a few months), failure to pay the full amount within this window results in interest charges. These rates can be substantial, often ranging from 20% to 30% annually or higher, depending on the provider.
3. iii) Penalties for Non-Payment: Beyond just late fees, BNPL non-payment can lead to credit bureau reporting, affecting your credit score and potentially resulting in additional penalties or higher interest rates for future purchases.
4. iv) Compounding Costs: Rollover payments and accrued interest compound over time, significantly increasing the final repayment amount compared to the original purchase. Therefore, use BNPL only if you are absolutely certain you can meet all the deadlines.

4. Financial Advisory: AKPK’s financial advisory services offer essential support for individuals managing loan or financing repayments. Our Financial Advisors provide personalised guidance on budgeting, debt management as well as BNPL complexities, helping customers assess their finances, explore new repayment plans, and develop strategies for long-term financial stability. You can learn more about AKPK and its services at www.akpk.org.my.

5. Financial Education: AKPK also provides free financial education services, including online modules, to help individuals improve their financial literacy and make informed financial decisions. In addition, practical information and guide about BNPL, such as “The Hidden Traps of Buy Now Pay Later” is included in AKPK’s newly published book, “Realising Potential! Unleashing Your Financial Potential” for young adults entering the workforce. The book is part of the GROW series with three other books designed to guide tertiary students, heads of family and retirees to navigate their financial life more wisely.

AKPK is committed to empowering individuals with the knowledge and tools to manage their finances responsibly. If you are concerned about your BNPL usage or are facing financial difficulties, we encourage you to reach out to AKPK for assistance