What To Do When BNPL Turns Into A Debt Trap

Buy Now, Pay Later (BNPL) plans have taken off in the recent past, particularly among young consumers seeking easy credit. The concept is straightforward, buy a product today and pay for it later in simple installments, usually with no interest if settled within time. However, if used irresponsibly or without a definite repayment schedule, BNPL can easily become a trap of debt.

How BNPL Works and Why It's Risky

BNPL services generally let users divide payments into 3-4 installments or wait a month or more to pay in full. Though this may appear beneficial, it usually stimulates impulsive purchases—particularly online. Users register for numerous BNPL programmes simultaneously, remembering only that they are accumulating short-term loans. And when payments fail, charges for penalties, late charges, and increasing interest fees ensue.

What makes it difficult is that BNPL platforms don't report to the credit bureaus unless there is a default, so it doesn't feel like 'real' debt to most. But when the debt mounts and it gets hard to pay, the customers are compelled to borrow again—either on another BNPL scheme or through credit cards or personal loans.

"Consumers should, first of all, understand that BNPL is a product that essentially takes advantage of the factor that individuals or humans fall for instant gratification", says Amol Joshi, founder of PlanRupee Investment Services. 

Joshi also adds, "When you say buy now pay later, you are buying something for which you have no purchasing power, but you still want to buy it. And that will obviously not come with free of cost, it comes with the fact that you will have to pay off the principal plus interest within a defined period of time. If you do not have a supporting cash flow, then multiple problems occur."

The Tell-Tale Signs of a Debt Trap

Most individuals realise too late that they are trapped in debt. Some warning signs include:

• Using one BNPL scheme to settle another.

• Paying minimum or missing multiple payment due dates.

• Depending on BNPL for necessities such as groceries or bills.

• Receiving collection calls or notices from the BNPL company.

What to Do if You're Already in the Trap

In case you have missed several BNPL payments, try the following:

1. Compile All Your Outstanding Dues

Create a simple spreadsheet of all your current BNPL accounts, due dates, outstanding balances, and penalty fees. This will present you with a complete picture of your commitments.

2. Prioritise Repayments

Pay off the smallest dues first—this minimises your number of active loans and provides a sense of accomplishment. If there are any accounts that are nearing their due date, pay them as soon as possible to minimise further penalties.

3. Contact the BNPL Provider

Most BNPL organisations permit users to roll over timelines or rephrase payments if they reach out sooner. They could provide a one-time payment facility or waive a late fee in case you intend to pay it back.

4. Consolidate your Debt

If you cannot handle multiple BNPL accounts, try to consolidate them through a low-interest personal loan from a bank or a regulated lender. Although this transfers the debt, it provides you with a fixed EMI and extended repayment period.

5. Refrain from New Credit

Until you have settled outstanding BNPL dues, do not take on new credit. Avoid using BNPL for new purchases and delete the options from your payment apps.

Joshi says, "[BNPL] also spoils your credit score. With BNPL you get comparatively smaller ticket loans, which may hinder your future credit ratings. But then the real deal comes, like purchasing a home loan, which will go into ten of lakhs, because that you are building the biggest asset of your life, that time a poor credit score will harm you in a very adverse way."

6. Take Help if Necessary

If you find yourself overwhelmed, don't delay in speaking with a financial counsellor. There are advisors and online portals that provide debt management advice free of cost.

Shifting your Habits

Falling into a BNPL trap is often a result of poor budgeting or impulse buying. After clearing the debt, consider setting a strict monthly budget and using only debit cards or prepaid wallets for online shopping. Also, treat BNPL as seriously as a credit card—it is still a loan, even if it doesn’t show up on your credit score right away.

"Plan [your borrowings] accordingly, do not fall for instant gratification, do not purchase what you see in reels or social media, because you are not really aware of the intricacies of their (influencers') financial situation and realities of their life. So, you should not blindly follow", warns Joshi. 

But until then, the responsibility of using BNPL smartly rests with the consumer. Even though it is convenient, it must not be confused with money for nothing. Knowledge of the pitfalls—and acting on them early—prevents a short-term convenience from morphing into a long-term financial headache.