Buy Now, Pay Later schemes may turn into debt traps

The Sun

4 days ago

PETALING JAYA: Low financial literacy and a lack of transparency in Buy Now, Pay Later (BNPL) schemes could trap Malaysians, particularly young adults, in short-term debt with long-term consequences, said Universiti Teknologi Malaysia management faculty associate professor Dr Nanthakumar Loganathan.
'Many believe there is no interest at the start, but hidden charges, fees and terms are often overlooked,' he said, adding that individuals are drawn to BNPL for household purchases but risk compromising their monthly budgets.
In the first half of 2025, Malaysians made more than 102 million BNPL transactions worth RM9.3 billion, a 31% jump from 2024.
Finance Deputy Minister Lim Hui Ying was quoted as saying consumers aged 30 and below accounted for 40% of the transactions.
As of June, outstanding BNPL debt stood at RM3.8 billion (0.2% of household debt), with RM121.8 million overdue.
A 2024 Consumer Credit Oversight Board Task Force survey found 88% of users paid on time, 12% paid late but in full and less than 0.5% defaulted.
He said BNPL can be a useful option if both buyers and sellers understand the terms, but warned it often fuels impulse buying, especially when driven by online shopping trends and social media promotions.
He also said e-commerce and social media platforms offering BNPL should be held to the same regulatory standards as licensed credit providers under the Consumer Credit Act.
'We need a dedicated government agency to monitor BNPL and ensure buyers are not shut out of future loans due to debt burdens.'
Nanthakumar said late fees are common when it comes to missed payments and in some cases, debt collectors get involved. Defaulters risk being blacklisted, making future credit harder to secure.
The Consumer Credit Commission (CCC) is expected to oversee BNPL practices, including interest rates, currently ranging from 15% to 25% annually, and enforce greater transparency.
The CCC aims to protect consumers through civil action and criminal prosecution.
He also suggested creating a government online portal where consumers could verify BNPL providers and lodge complaints, to stop sellers imposing hidden or unauthorised terms.
Meanwhile, the Federation of Malaysian Consumers Associations (Fomca) voiced similar concerns.
Its CEO Dr Saravanan Thambirajah said the organisation is seeing more complaints and enquiries about BNPL services.
He highlighted recurring problems such as consumers misunderstanding repayment structures, leading to late fees and unexpected charges, and disputes over faulty or undelivered goods on which repayments continue despite complaints.
'Some platforms market BNPL by stressing convenience while downplaying the risks. Phrases such as 'zero interest' or 'pay later' are highlighted, but the consequences of non-payment are far less visible.'
He said BNPL could create a false sense of affordability, encouraging overspending, especially when multiple BNPL services are used at once.
Saravanan said Fomca supports the government's plan to introduce affordability checks under the upcoming Consumer Credit Act 2025 but stressed enforcement must be robust.
He also said e-commerce platforms should meet the same standards as conventional credit providers, with clear disclosure of all fees, capped late charges and repayment suspensions during disputes.
He also called for stronger financial literacy campaigns, starting in schools and reinforced through public awareness drives, adding that BNPL platforms could send repayment reminders before purchases are confirmed.
'BNPL is still a form of credit, not free money. Consumers should only use it if they are certain they can repay on time. Keep track of all commitments and avoid (overspending). The key is moderation and awareness.'