The idea of Save Now Buy Later claims to turn the Buy Now Pay Later concept on its head. Why pay interest if you can afford to wait for sometime to achieve your desired financial goal?
It appeals to conservative sensibilities. It looks like a pathway to achieve the goal of staying debt-free.
Let’s look deeper.
WHAT IS SAVE NOW BUY LATER?
- You define a financial goal with the name of the item you wish to purchase and identify the merchant. Now, you input the details in a money management app.
- You start saving and depositing a predetermined amount in it at regular intervals.
- The app invests your money in direct mutual funds, or keeps it in RBI-regulated escrow accounts, till you achieve your goal.
- As soon as you achieve your goal, you buy the desired product, and get rewarded by the app for reaching your goal.
IS IT SIMILAR TO A SIP OR RECURRING DEPOSIT?
The similarity is superficial.
The app sends the money to the merchant. The merchant actually gets an advance payment in instalments for whatever you wish to buy.
You cannot change the financial goal or the merchant.
Withdraw your money in between if you wish, but you get no interest on the amount.
BENEFITS OF SAVE NOW BUY LATER APPS
- It facilitates the habit of goal-based saving and investing.
- You cannot spend the money earmarked for a purpose on some other item.
- Reminders and nudges from the apps keep you on the right track.
- It helps you plan for payment of insurance premiums and other annual expenses.
DISADVANTAGES OF SAVE NOW BUY LATER APPS
- You lose your freedom to revise or modify a purchase goal.
- Your money goes to a financial institution like a bank or mutual fund, or the merchant. It does not remain with the app. Any problem between the app and merchant can prove to be troublesome for you.
- If your chosen vendor closes business, you lose your money.
SAVE NOW BUY LATER APPS IN INDIA
The popular apps are
Tortoise places your money in a RBI-regulated escrow amount.
Multipl is a SEBI registered Investment Advisor, which places your money in direct plans of mutual funds, after assessing your risk profile.
They invest your money in ICICI Prudential liquid or savings funds, depending on the horizon of your plan. They provide a customized goal tracker and send reminders for depositing money.
There are no charges. You get 5 reward points for spending money, and 10 points for completing a goal and making a purchase. They place your money in banks.
Needless to say, the rewards come from the merchants from whom you buy goods or services.
DIFFERENCE BETWEEN BNPL AND SNPL
BNPL schemes pay a discounted price to the merchant, and then recover the amount from you. If you fail to pay the entire amount by a pre-determined date, they start charging interest.
SNPL or Save Now Pay Later apps collect money from you in instalments and pay it to the merchant, immediately or after a time gap. There is an agreement between the SNPL app and merchant about the same. If you change your mind about buying the particular product, you risk losing interest on your money.
TNPL or Travel Now Pay Later is a variation of SNPL, but is restricted to holiday travel, and has tie-ups with hotels and travel agencies.
IS SNPL A GOOD IDEA?
- Save Now Pay Later is a good idea for essential expenses, where the goal is not likely to change.
- You need not dip into your emergency fund for certain expenses.
- It is good for people who lack spending discipline and would like to block funds for the desired goal.
- If fintech is your way to go, then go for it but be mindful of the risk involved.
- If the merchant you are tying up with is one like Apple or a similar brand, you may want to retain your option to change your mind.
- There will be better or more economical brands in the market.
- You may decide on a rental option instead of buy.
- Unforeseen exigencies may compel you to divert funds elsewhere.
CAN YOU CHOOSE TO SAVE MONEY ELSEWHERE?
The conventional method of enabling auto-debit in accounts to direct the money to a goal-based specific account or mutual fund SIP is always open.
You can opt for micro-investing apps like RoundUp and Jar to invest small amounts in mutual funds or digital goal. You can add money as desired, other than the small amounts debited to your account.
A single account on Jar or RoundUp, a recurring deposit or SIP can be designated for a specific financial goal. Withdraw money on maturity and use your discretion to buy the best product, not just the one you committed yourself to.
Make a wise choice. It’s your money.