LETTERS: The enactment of the Consumer Credit Act by Bank Negara Malaysia (BNM) this year aims to strengthen the regulatory arrangements for all consumer credit activities including "Buy Now, Pay Later" (BNPL) scheme providers.
The concept of BNPL is similar to the traditional method of shopping whereby consumers could only own the item after relevant instalments or full payment has been made.
BNPL is a type of short-term financing that essentially allows consumers to purchase with 0 per cent interest via monthly instalments.
Some platforms offer deferral of payment until the end of the month or allow payment in the following month.
Some BNPL players charge interest or a penalty fee if the consumer makes a late payment.
Consumers are required to have a good credit score in order to apply for a credit card.
Hence, one of the reasons consumers consider BNPL is because a good credit score is needless. Therefore, consumers can apply for the BNPL scheme even if their credit score is below average.
Besides, consumers' monthly budget would not be affected as large payments can be made regularly. For example, RM3,000 is needed to purchase a new mobile phone after it breaks down.
Consumers do not have to use their emergency savings and may enjoy a monthly instalment of RM1,000 per month.
This gives them enough space to breathe and allows them an opportunity to use their emergency savings if there is an emergency within the same month instead of making other purchases.
Nevertheless, the BNPL scheme has some disadvantages, whereby a majority of BNPL platforms will charge a fee if the consumer is unable to pay the credit that has been used.
Some BNPL platforms may cost even more than using a credit card. Apart from that, BNPL also makes it easy for consumers to buy items that they do not require which leads to unplanned expenses.
Furthermore, some BNPL platforms may send late payment records to agencies that oversee consumers' credit scores. This will eventually affect consumers' credit scores and consumers will find it challenging to apply for a home, car, or credit card loan in the future.
Therefore, the public are advised to be careful in making decisions involving the BNPL scheme to avoid facing an increase in debts and the failure to pay the credit that has been used.
Consumers are advised to postpone purchases until they have managed to raise enough funds to purchase without using the BNPL scheme.
DR PAUL ANTHONY MARIADAS, DR UMA MURTHY
School of Accounting and Finance, Faculty of Business and Law, Taylor's University
The views expressed in this article are the author's own and do not necessarily reflect those of the New Straits Times