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BNPL—or buy now, pay later—is a credit instrument that is becoming popular fast. A BNPL is a no- or low-interest loan facility for small transactions. The BNPL provider settles your bill on your behalf, and you repay the provider within an interest-free window to avoid additional charges. As we head into the festive season, we may hear the term more and more. So, let’s understand BNPL better and see how it compares with a credit card or a personal loan.
BNPL also known as Buy Now Pay Later is a payment option where you can make a purchase without having to pay from your own pocket. Generally, you sign up with a company providing this facility who makes the payment when you make the purchase.
However, once the lender pays on your behalf, you will have to repay the amount within a stipulated time period. You can either pay it as a lump sum amount, or you can pay it via no cost Equated Monthly Installments (EMIs). If you fail to pay the amount within the given repayment tenure, then the lender will be liable to charge you interest on your amount. Further delay could impact your credit score severely.
BNPL is an interest free and a low-cost option and can be activated on the provider’s platform. There are usually two types of BNPL products 1) Small ticket credit with an interest free period and 2) For bigger purchases like electronics, consumer durables etc with EMI options.
Buy Now Pay Later (BNPL) caters to the unfulfilled requirements of a major chunk of Indian society for credit as it offers the convenience of digital payments and advantage of BNPL.
BNPL has several advantages over credit cards, on account of being digital, resulting in low cost of operations, as well as, having the ability to offer smaller ticket size credit, making it a more scalable and profitable alternative over the traditional credit delivery models. BNPL can also be used for daily life use such as groceries, bill payments, electronic purchases, and other essentials etc.
Some of the BNPL players available in the Indian Market are given below:
Some of the benefits of BNPL are listed below:
To sign up for a BNPL, you need to visit the website or app of your preferred BNPL provider, fill out a form, and complete your know your customer (KYC) process. Based on your eligibility, you will be provided with the credit line that you can use to shop with the merchants that have partnered with the provider.
The use cases for BNPL loans are limited, though this is expected to change dramatically as this lending segment grows exponentially. It’s often easy to avail of BNPL because the eligibility norms are relaxed compared with other credit products. There is also no joining or renewal fee.
In most cases, the BNPL does not attract interest. The loan provider collects from the merchant with whom you shop.
However, you need to repay your dues in the interest-free window, failing which the lender will apply a late payment fee. Since this is micro-credit, you borrow small amounts, typically from a few thousand rupees going up to ₹1 lakh in some cases. Your repayment behaviour will impact what you get to borrow. Responsible borrowers get enhanced spending limits.
A BNPL can be used only with a partner merchant, offline or online. A credit card can be used with any business that accepts it as a payment mode, offline or online, plus the user gets an interest-free period. You could make cash withdrawals from your card, which is not a BNPL feature. Your credit card limit may also be much higher in comparison. Card dues attract interest. On premium cards, you also pay joining and renewal fees. If you do not have a stable pay or a sturdy credit score, you will have difficulties in using, or availing of credit cards.
Eligible borrowers of personal loans may avail up to ₹20-40 lakh, which the borrower can utilize any way they want. Tenures of these loans are usually one to five years.
BNPLs, on the other hand, are not only small loans but are typically expected to be repaid in days or weeks. Any loan, however small, needs to be repaid on time.
While most BNPLs do not normally entail hard credit inquiries, late payments will register in your credit history, bringing down your credit score. Therefore, always repay your dues on time, no matter how small.
While customers usually get to enjoy a minimum interest-free period, they need to repay the amount within this window. If they fail to repay, there could be late fees applicable. Defaulting on the payment can also spoil their credit score and make it difficult for them to apply for bigger ticket loans.