Lim Kopi Fridays Videos

Ep. 6 - Why Buy Now Pay Later can aggravate your financial situation


00:00 :

Hello everyone, my name is Adrian and welcome to another episode of Lim Kopi Fridays with Adrian. In this episode, we are going to talk about the scheme Buy now, pay later, and how this can actually aggravate your financial situations moving forward. Let’s dive right in.

00:23 :

This buy now pay later scheme is actually not new in the financial world. It’s just that in recent years there have been more service providers especially targeting the buy now pay later schemes. In the past, there have been credit card companies or banks that offer credit cards installment plan whereby they give you 0 % interest if you split for like 3 months, 6 months, 12 months and for some cases, you can even split to 24 months or even 36 months. How can this plan seemingly helps you improve your cash flow can aggravate your financial situation? It boils down to two main things that I’m going to touch on today.

01:04 :

And the first one is the Buy Now pay later schemes can lead you to think that you have control over your finances, which I feel that it is giving you a false sense of control. Why? Because as you split to maybe like 6 months, 12 months or even the longer periods up to 36 months, you are actually spending your future money. So it keeps you inside this perpetual loop whereby you feel that whenever you have money, you want to get a new purchase and go through this buy now and pay later schemes.

01:37 :

And this is a common scenario or phenomenon that I’ve seen these days where people are getting more into perpetual debt and they are not even knowing that they are doing that. By getting into these schemes, you do not have a good sense of where your savings are and slowly you will feel that you are not saving much. After maybe about five years or even after 10 years, you don”t know where your money goes. This could be a serious problem if you are not aware of it and you unknowingly keep overspending your money by getting the new purchase thinking that you are not too tight for the month because of your improved cash flows that comes with this buy now pay later scheme.

02:26 :

And the second thing that you may have to look out for is because, usually these schemes are tied to your credit card, unknowingly sometimes you may get into credit cards interest payment, late fees, finance charges or worse, you may exceed your monthly repayment. Some people, what they do is, they go for balance transfer and they take a loan from the bank to pay for these additional purchase on a monthly basis and they find out that when they take a loan it doesn’t stop there, it just continue all the way.

02:56 :

This could also be a trap that you might have to look out for if you are getting into these sort of schemes unknowingly. Of course, if you’re aware of it, you have additional cash that you set aside and you’re just using this as a form of cash flow improvement, I think that’s perfectly fine because for some people, especially for those who are self-employed where your income is not so stable, this is actually a good scheme, provided that you are aware of it and you mindfully repay your debt on time.

03:29 :

However, if you are in this situation where you don’t know whether or not you are on debt or how much savings do you have, there are some ways that you can do to overcome this, and one of the ways is you can create a budget. And creating a budget is important for you because you will know where your money will be going to and if you have additional expenses along the way, you update the budget so that towards the end of the year, if you look back, you review the whole year, you will understand where does your money goes and how much is left in your bank account and how do you derive to that amount.

04:08 :

Because most people they get into the buy now pay later schemes and they don’t know where the money goes. So these additional step can help you to take control or even take more control over your finances. And the second thing is to have a mindset that you save enough before you buy the purchase. What do you mean by this? Now, assuming you want to buy a fridge that costs about $3,000 and if you have that $3,000, I think that’s perfectly fine if you go for a buy now pay later schemes because you are not overspending or you are not spending your future money. You’re spending

04:46 :

what you currently have, is just that you split into installments to even out your cash flow. However, if you only have like $3,000 and you want to buy a ten $10,000 dollars fridge, that’s over already.You may overspend because your budget is only $3,000 But you are expanding your budget by another $7,000 to pay for the fridge, which cost $10,000. And if you think about it, the $10,000 if you split to 12 months, that’s probably about less than $900 a month. And with $3,000, you still can afford it at that time but, you have to spend your future money to pay for the $10,000 fridge.

05:27 :

These are traps that you have to avoid and make sure that you try to save to a certain amount before you embark on a new purchase. And last but not the least, do track your repayments and ensure that you do not get into additional interest payment, finance charges or the other kind of payments from the credit card. Because those payments are very relatively high and sometimes these can accumulate over time and before you know, it can accumulate up to a high amount that it starts to demoralise you then you will be in a situation where you feel that you just continue to be in that state of repaying the debt every month or paying the minimum amount and that’s not very healthy for your finances.

06:19 :

While there is convenience and flexibility in using the buy now pay later schemes, it might not be suitable for some people. And if it’s suitable for you, sometimes you may get trapped in that perpetual cycle as well. One of the ways that you can handle this is to be mindful about it. Save the amount that you want before you go into the purchase and to track your repayments and to create a budget to help you analyze your repayments to give you a forecast of your new spending for the new year.

06:58 :

So cultivating healthy financial habits is the way to go for you to manage your finances. I hope this helps and I’ll see you in the next episode.