Buy Now Pay Later isn’t all bad
This technically goes against everything I have ever spoken about on Instagram. You will know that I am a huge hater of Klarna and the other BNPL schemes out there.
However, whilst I was studying for my last exam and looking at the time value of money, I got thinking.
Assuming that you already have a mortgage and aren’t looking to apply for any large lines of credit in the future, BNPL could be an incredibly useful tool for you to build your wealth!
Let me explain…
Hopefully, we are all aware of the dangers of inflation. You have probably seen the US report disgustingly high inflation rates of 5.4% over the last year. In short, this means that if you had £100,000 last year, that is now worth only £94,877 in today’s terms of purchasing power.
I don’t know about you, but that stings!
To combat inflation and the slowly decreasing value of our cash, we tend to focus on investing in stocks and crypto which should grow by a higher amount than inflation.
How does this relate to BNPL?
The reason that this is important, is that the stock market is thought to return approximately 7% annually after deducting inflationary effects. However, you can’t invest that £1,000 you just spent on a brand new sofa can you?
However, if you had access to interest-free credit via a BNPL credit scheme, then you could technically invest that £1,000. Let’s have a look at an example.
Say you are offered 0% interest and you pay nothing for 12 months.
Today, invest £1,000
12 months later, you have £1,070 in purchasing power.
Pay off the sofa and pocket the £70 profit, simply from using BNPL.
Why this could be dangerous.
Of course, the reason that it isn’t common practice to do this is that you start to rack up high levels of debt.
As a result of getting high debt levels, your credit score would plummet and you would likely forget about how much money you owe.
This could lead you to struggle to cover your costs later down the line.
In conclusion…
Therefore, I don’t recommend doing this. However, say the stock market is in the middle of a crash and you have the opportunity to defer payments so you can buy stocks at a discount… maybe it is worth doing this then!
Just food for thought really, but let me know your thoughts on Instagram!