BNPL And The FOMO Culture: The Risk Of Overspending And Falling Into Debt

Recently the RBI governor said that Buy Now Pay Later (BNPL) reduces youth savings. In fact, BNPL, lets you buy now but pay later. And that is convenient. However, it is true that the easy availability of credit often leads to increased spending. This is also the case with BNPL schemes. 

The Pitfalls 

BNPL is preferred due to affordability. However, it could be better credit usage. It simply spoils your saving habits. One should only use this in emergencies like the breakdown of a gadget or when your earnings demand priorities like investments or regular expenses.

In fact, young savers do not want to go through the pains of planning and accumulating before they make a big purchase. They become a social herd who believes in consuming today and not waiting for tomorrow. You fear being left out (FOMO). Hence you catch any lifeline that offers you a small relief.

But this makes you credit-hungry. You bite more than you chew! Soon you fall into a credit trap and most of your earnings become equated monthly installments (EMIs) rather than investments which will be beneficial in the future. 

“If you fail or delay to pay, the lender will impose a penalty immediately. Also, the entire amount due becomes payable. Lenders are also free to initiate a recovery process against you. Lenders will also report this delay/default in your CIBIL history,” says Krishna. 

BNPL taken through illegal apps can also lead to data theft and online fraud. RBI has banned more than 1500 such apps in the last three years. But one often gets lured by freebies offered by these apps.

Exercise Financial Prudence 

“Using BNPL to order food and monthly groceries is not a good option. Though you may say it is for a short period, it involves money. Using any credit line requires financial discipline, and you must exercise caution,” says Madhupam Krishna, Securities and Exchange Board of India (Sebi) registered investment advisor (RIA) and chief planner, WealthWisher Financial Planner and Advisors. 

“It is important to exercise financial prudence and only utilize such offers when absolutely necessary. Before making any purchases, it is crucial to have a clear understanding of your cash flow and ability to pay back any debts incurred,” says Raoul Kapoor, Co-CEO, Andromeda Sales and Distribution.