The BNPL industry is set to explode over the next few years. We already have a handful of Malaysian-based BNPL services available, with some international names added as well.
Well-known apps like Shopee and Grab started offering BNPL services not too long ago, and cashback rewards program brand ShopBack acquired hoolah to do the same.
The participation of popular apps with immense followings would open the concept of BNPL to a wider audience and could benefit those who do not have access to a credit card.
On the other hand, many warn that BNPL is a debt trap, especially in the hands of vulnerable and less financially literate individuals.
So, we reached out to a handful of personal finance bloggers for advice on how BNPL can be put to good use. They are:
But first, a preface on the BNPL position of bloggers
Similar to a credit card, mortgage, car loan, etc., BNPL is another credit option. KC and Yi Xuan see BNPL as just one of several financial tools for users to manage their money, if used wisely in appropriate scenarios.
“The biggest advantage and disadvantage of BNPL is its accessibility,” Yi Xuan said. “It allows people who don’t have access to loans/credit to solve pressing financial problems, but if misused it can cause a deep financial spiral.”
Helmi and Suraya, on the other hand, are strongly against BNPL. Helmi is of the opinion that no one should live on credit or spend beyond their means, while Suraya thinks BNPL does more harm than good.
In fact, Suraya own writing states its position very clearly: “BPL brings the culture of debt to the most financially vulnerable in society. Being the lesser evil than loan sharks is no feat.
Now the tips
1. Only consider BNPL if you can already afford the purchase
I have already considered using BNPL to pay for my car insurance. Realistically, I could comfortably afford this amount in one lump sum, but I wanted to spread my payments over a few months because it hurts to pay a huge amount up front.
KC and Yi Xuan justified that it was a good scenario to use BNPL. “Especially when [doing so comes] without interest. There’s no loss to you, but you earn the return you generate with the money while it’s still in your hands,” KC said (more on that later).
“Make a money rule that if you buy an expensive item, buy it only if you can afford it in advance.”
Alternatively, Suraya suggested using the “sinking fund method,” where the amount needed is already saved up front.
“Let’s say your car insurance is RM1,200 a year, so your sinking fund for car insurance is RM100 a month,” she illustrated.
If the purchase you intend to make is more of a want than a need, and you know you can’t afford it with or without the sinking fund method, Helmi has some solid advice: don’t buy it, or go for a cheaper alternative than you can actually afford.
2. Only use BNPL for discounts
As for using BNPL only if you can already afford the item you are considering buying, the only reason Suraya really suggests using BNPL is to take advantage of the discounts provided.
Yi Xuan could understand, adding that even though he has never used a BNPL service before, he would consider it if the promotion that comes with it is really appealing.
3. Use BNPL if you plan to channel your remaining savings into investments first
With financial literacy education at the core of his career, KC advocates that his readers be smart about money.
So when asked what situations he thinks warrant using BNPL and how he would recommend people determine if something is worth using BNPL, he described one scenario.
Suppose you have RM3000 to buy a smartphone and you have two options to repay the amount:
- Option A: Pay RM3,000 in advance all at once;
- Option B: Pay RM1,000 per month for three months using BNPL.
“You can choose option B. After paying the first installment of RM1,000, you still have RM2,000 which you can place in your flexible loan account to offset a home loan interest of around 4% “, calculated KC.
“Alternatively, you can put it in a fixed deposit for a 2% return, or you can also put it in SSPN to also earn a return of around 4%. All profits made in the next three months belong to you.
4. Avoid using BNPL to impress others
When the above question was posed to the rest of the financial bloggers, Suraya said that BNPL is only justified in a life or death situation, where health and safety are compromised.
Adding to his remarks, Yi Xuan, who thinks it is valid to use BNPL for medical emergencies.
“I don’t think it’s up to me to tell people how to value the BNPL service. Instead, let me suggest when not use the BNPL: never use the BNPL just to impress people around you, [which can end] at the top [putting] you in a worse financial situation,” Yi Xuan said.
Helmi added: “The central problem is that most Malaysians are underpaid and we cannot afford basic living needs. We are a third-world country with a first-world appetite.
“So stick to a budget and set a goal that you want to achieve. Stop following people online who promote unnecessary luxury lifestyles and live your life.
As Malaysia moves forward with its digital banking plans, all of the financial bloggers surveyed believe the BNPL is key to the country’s future.
Suraya pointed out that with the cost of living rising and wages not keeping up, there is simply no other way to encourage people to keep buying unless they have easy access to credit. “It’s just capitalism,” she summed up.
KC pointed out that the economies of advanced countries are fueled by credit, which means that financial education is crucial with such accessibility.
“You can be smart about money so you know how to use all the financial products at your disposal, responsibly,” he noted.
Meanwhile, Helmi believes it is the institutes’ responsibility to protect consumers. He hopes that the BNM will come up with regulations for the currently unregulated BNPL sector.
Yi Xuan agreed and shared that there should be strict rules regarding repayment terms so that these services don’t become “legal Ah Longs” with ridiculously high interest rates.
“I think [BNPL services] are most definitely here to stay since I don’t see any conventional banks [making] changes in how they approve customers for loans/credits,” Yi Xuan observed.
Whether or not the advent of digital banking in Malaysia within one to two years will disrupt the BNPL landscape here remains to be seen.
- Read more finance-related articles we’ve covered here.