The biggest, most active shopping days are here, and the proverbial talk is over. Retailers from the biggest online giants to the smaller corner mom-and-pop stores are pulling out all the stops. Retailers perpetually find themselves switching up marketing ploys and tactics. It is absolutely necessary for this type of economic environment, but that is neither here nor there.

Consumers are taking notice of “Buy Now Pay Later” (BNPL) at the checkout. Should consumers ignore this novel payment option?

BNPL Overview

BNPL seems pretty self-explanatory, right? Sure, the general concept of the financing option is more than easy to understand. Any consumer that’s ever used a credit card is likely more than familiar with the structure. However, BNPL is like credit card shopping with a twist. Consumers can sometimes forgo credit checks, background scrutiny, exploding interest rates, as well as the hassle of keeping up with the physical card.

At least, this is a general theory. Just like every profitable venture, BNPL lenders will always get involved to collect their piece of the pie.

Biggest Players In BNPL

• Affirm
• Afterpay
• Sezzle
• PayPal Pay In 4
• Klarna
• Splitit
• Zip

BNPL Finance Model

Lenders like Klarna and Affirm have a unique lending structure that bases consumer spending limits on a credit score. The credit-based structure is typical in the lending industry. Financial institutions like credit unions and banks base the loan amount on the consumer credit score. Consumers must be approved to qualify for a BNPL spending limit.

This structure typically requires the consumer to fill out and qualify for a credit check at the time of the purchase. Consumers need their personal information as well as their social security number on hand to complete the forms. The important takeaway with this model is the potential for the reselling of your information to marketing firms.

If approved, the customer has virtually done nothing more than opened a new line of credit to fund this purchase. Missed or late payments will likely be subjected to higher interest rates or financial penalties.

Splitit BNPL Lender

Splitit is a card-based BNPL lending model. This structure requires consumers to have an existing Visa or MasterCard credit card. This allows the forgoing of new credit checks and filling out applications, but it does create the caveat of the full balance. When a purchase is completed, the full balance must be available on the credit card tied to the account.

Splitit has also partnered with Stripe to put more money in consumers’ pockets this holiday season. Of course, consumers are not charged the full amount upon purchase. It just must be available! The repayment of the full balance will get set aside and paid in a weekly or monthly sequence over several weeks, months, or a year. The benefit here is the avoidance of late fees and additional interest accumulation. Apart from what the card provider already requires, Splitit doesn’t attach any additional charges.

A Quick Look At The Benefits

Independent filmmakers understand the value of their equipment. Getting started in the industry is always the most difficult. A common setback for more beginners is a lack of funding.

Premium film equipment carries a hefty price tag, just ask any producer. Nikon, Canon, Panavision, Sony, Panasonic, Fujifilm, and Red Digital Cinema are some of the biggest names in the business. The price tag various between $6,000 and $23,000 for a quality camcorder. So, it’s easy to see why new filmmakers so often find themselves with a busted budget. BNPL has proven to be a valuable financial tool for independent filmmakers. Depending on the budget, BNPL could support a quality camcorder, tripod, speakers, audio interface, MIDI keyboard, lighting gear, and lenses.

‘Buy Now’

It only makes sense, BNPL puts the “buy now” option at the consumer’s fingertips. Once approved, the checkout process can be completed.

‘Pay Later’

The “pay later” feature isn’t as straightforward as it varies from one BNPL lender. For example, Affirm allows consumers to repay their loans over six weeks, six months, or one year. Afterpay, on the other hand, gives consumers six weeks to pay their balance in full.

The “pay later” should play a major role in deciding how a customer needs to pay their balance in full. It’s vital for consumers to consider their current debt, employment status, and weekly, bi-weekly, or monthly income.

Interest-Free BNPL Loan

Does interest-free BNPL exist? Absolutely, but maybe not as consumers expect. To take advantage of the interest-free option, consumers must pay their balance in full before the interest is tacked on.

The interest-free period varies from one BNPL lender to another. It may be 15 days, 30 days, or six months, depending on the loan term.

Paying the balance in full before the interest-free deadline can help consumers save up to $30 on a $100 loan with a 30% interest rate.

BNPL Late Fees

A minor financial mishap can just as easily result in a late payment for a BNPL loan as a personal bank loan. The major difference is BNPL lenders are not always so forgiving. In fact, some lenders impose late or missed-payment up to 25% of the purchase price. Other lenders charge a set rate of $7 or more.

A missed or late payment could turn BNPL into a nightmare for some consumers.

BNPL Reactivation Fee

BNPL lenders are also notorious for imposing reactivation fees on deactivated accounts. Sezzle is just one example. The lender imposes a $10 activation fee on all accounts that have been deactivated for missed payments.

BNPL Spending Limit

BNPL lenders generally have a set credit line per transaction. This is an important factor in determining which lender to do business with. As previously mentioned, filmmaking equipment has a high price. A BNPL lender with a flexible credit line will always be your best option.

Paypal Pay In 4 has a $1,500 credit line per transaction while Afterpay’s credit line starts at $500. Affirm has one of the highest BNPL credit lines of $17,500 max.

Do BNPL Lenders Cover Lost, Stolen, Or Damaged Packages?

An important tidbit to keep in mind when shopping for a BNPL lender is insurance. Consumers oftentimes confuse BNPL for a credit card company. While the finance model is similar, BNPL lenders do not offer chargebacks.

BNPL is a third-party lender with limited protections. Klarna, for example, doesn’t cover missing, damaged, or stolen merchandise. Klarna processes the payment after the shipping details are confirmed.

Consumers need to be aware of the BNPL lender’ limitations. Does the BNPL company protect consumers against retail fraud, porch pirates, and poor shipping services.