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In this day and age, there are many services that allow us to split up our transactions into smaller, 0% interest instalments and/or allow us to pay later. This model is commonly known as “buy now, pay later”. It can be a double-edged sword; while it offers flexibility, it can also lead us down a rabbit hole.
In the wise words of our parents and grandparents: Never be in debt, never buy anything you cannot afford, and pay everything upfront, they said. Wielding the flexibility of “buy now, pay later” could be a way to spend responsibly (more liquidity)… only if you are smart about it. Otherwise, it might lead to underestimating your spending and overextending your debt.
What situations should you never consider “buy now, pay later”? Here’s a quick checklist to help you decide if you should go the route of “buy now, pay later”:
Do you REALLY need the item?
When it comes to needs versus wants, it’s usually quite clear-cut.
Our needs can be divided into:
- Daily needs: i.e. food, kids’ education and utilities
- Seasonal needs: i.e. Chinese New Year red packets, a wedding
- Emergency needs: i.e. medical bills, broken appliances, items that urgently need repair
While we still need some form of enjoyment (aka wants) in our lives, we should prioritise our basic needs. For our wants, it might actually be smarter to work towards saving for the item than going the “buy now, pay later” route.
Not only does this build patience, but when you finally achieve your savings goal, there’s more fulfilment. During the time spent saving up, you might also reconsider if you really want it and avoid an impulse buy that becomes a white elephant later, or you might find a better alternative that is more affordable.
Can you actually afford the item?
Perhaps you’re looking at the latest smart TV on the market. It’s super thin, has gorgeous, vivid colours and the blackest of blacks. But it also costs a pretty penny.
Some scenarios might play out in your mind:
- You are able to pay the full lump sum. However, after doing so, would you have enough cash left in case an emergency crops up?
- You could opt for the flexibility of a 0% interest instalment plan — by splitting up the cost of the TV into smaller, more manageable payments, you preserve your monthly liquidity (the overall cost is still the same but it’s less heavy on your wallet).
However, if the monthly instalments for the TV is still over-budget, perhaps it’s time to reconsider if you really need it. I typically split my monthly budget like so: 50% on needs, 30% on wants, 20% savings.
For a take-home income of $3,000/month:
If the monthly instalments are maxing out your “wants” or encroach into your “needs” or “savings” budgets, that is definitely a red flag and you should reconsider your purchase. Remember, you also need to take into account other monthly commitments such as insurance, loan repayments, or other ongoing installments.
In addition, do note that not being able to meet your monthly instalment payments would incur penalties, aka additional cost. This is NOT smart — you’d actually be paying more than you would have for the item.
Are there alternatives?
Can’t afford the latest smart TV but you still need to replace your broken one thatwhich can connect to your network of devices? The alternative might be a slightly older TV model with similar features but less cutting-edge innovation at a lower price.
If you’re not fussy, another way is to look for a second hand item through sellers with a good reputation — do remember to thoroughly check and test the item in person before going ahead with the purchase.
Sometimes the brand name doesn’t quite matter (i.e. no compatibility issues), so you might want to consider a less premium brand of smart TV. Alternatives also exist for items such as clothing, bags and even household fixtures.
Will it tip your monthly budget?
Most of us have a monthly budget that’s closely tied to our monthly income and other fixed payments such as mortgage and insurance.
You may be close to maxing out your budget but you really, REALLY need the item this month. For example, your washing machine broke down and you need a new one ASAP. How?
You can consider a service that will put the purchase on the following month’s budget instead.
One way is to time the purchase so that it appears on the following month’s credit card statement, or find a “pay later” service. Remember, NEVER allow the amount due on your credit card bill to go into the next month — you’ll be charged additional fees and interest (could go up to over 20% p.a.!). And if you do not settle your outstanding credit card bills in the subsequent months, your debt will continue to roll significantly. And that is SCARY.
On the contrary, “buy now, pay later” services are typically interest-free, as long as you pay on time. This is because you’ll be paying the lump sum anyway (but later), or paying out in 3 quick installments.
Do you have other ongoing instalments?
Just because you’re able to shrink your latest big-ticket purchase to $50/month doesn’t mean you can happily add it to your list of other ongoing instalments.
If you have 10 items on instalment at $50/month, you’ll be paying $50 x 10 = $500/month. REMEMBER, IT ALL ADDS UP.
Just because you can “buy now, pay later”, doesn’t mean you should. Make sure to always do your sums as it’s easy to get all trigger-happy and overspend.
Would you earn rewards points from the purchase?
Traditionally, 0% interest instalment purchases don’t attract perks (miles, cashback, points, etc) in return for the monthly liquidity offered. However, many “buy now, pay later” service providers do offer cashback and other promotions for users of their platform.
For example, with PayLater by Grab, users could earn GrabRewards points on all PayLater purchases. Yay!
How do I ‘buy now, pay later’?
We’ve been talking about the concept of “buy now, pay later”, but how exactly do you go about doing it?
With PayLater by Grab, you can choose to:
- Pay in 4 monthly instalments; or
- Pay from the next month
There’s also no interest, no upfront costs, and no fees — just remember to pay on time! Late payments will lead to your PayLater service being deactivated and you will incur a S$10 admin fee each time you reactivate your suspended PayLater account. Tip: Link your bank card to enable automatic payment so you’ll never miss a scheduled payment.
Furthermore, Grab will personalise your spend limit based on your profile and past payment practises, to help to reduce the risk of overspending.
PayLater by Grab is secure: Instead of keying in your debit or credit card details, just check out with your mobile number when shopping. Each transaction is also verified with a One-Time Password (OTP) sent to your mobile.
It also keeps you constantly updated: you will be notified on successful transactions, payment deductions and refunds. This can be easily done via the Grab app — instead of you needing to track your spending in yet another app or even writing it down in your notebook.
To be eligible for PayLater by Grab, you’ll need to fulfill these requirements:
- Age 21 years and older
- Platinum, Gold or Silver GrabRewards tier member, and
- Have used either a credit or debit card for at least 3 Grab transactions in the recent month.
If you’re eligible, you can activate it in-app, or simply launch your Grab app, tap on Payment on Enjoy Now and Pay Later under ’Do more with your money’.
And ALWAYS remember to spend responsibly, no matter which method you’re using to pay.
Find out more about PayLater by Grab now.
The information in this article is meant for informational purposes only and should not be relied upon as financial advice. This content has not been reviewed by the Monetary Authority of Singapore.