Buy Now Pay Later (BNPL) in India – All You Need to Know

November 10, 2022

Buy Now Pay Later or BNPL is a payment method that allows an individual to make a payment without actually paying for it. The payer can avail of this revolutionary service by signing up for a company offering BNPL. They will be required to pay the borrowed amount within an agreed timeframe, failing which will lead to the imposition of interest on the borrowed amount. One can either make a lump sum payment or via no-cost Equated Monthly Installments (EMIs). Needless to say, there is no interest levied until the repayment tenure.

Read this blog to learn more about the buy now pay later service and how it can affect a person’s credit score.

The Process of Buy Now Pay Later

The financial arrangement, BNPL, may seem like a tedious process but is a hassle-free tool. The companies offering BNPL services run on a similar operational model with terms and conditions varying from lender to lender. Having understood what is BNPL, let us see how it works.

  • Get the cart checked out at a retailer that accepts payments through BNPL
  • Choose the ‘Buy now, pay later’ option
  • You will be required to make a small amount of down payment once you get the approval
  • The payment of the remaining amount shall be made on your behalf

It must be noted that the lender will be expecting their return within a specified period of time. Their payment can be made using financial instruments like cheques, bank transfers, debit or credit cards, or directly from the bank account. The amount can be paid in lumpsum or deducted via EMIs.

Eligibility Criteria To Use Buy Now Pay Later

An individual must ensure that they are eligible to avail of the buy now pay later service. This ideology takes into consideration the following things and is advised to use it wisely as it can directly influence the credit score. The borrower must be:

  • An Indian resident 
  • A resident of any major tier 1 or tier 2 city.
  • Between the ages 18 and 55
  • An individual with a regular source of income
  • An account holder with complete KYC verification

Advantages and Disadvantages of Buy Now, Pay Later

There are two sides to a coin, a positive and a negative. BNPL service has its pros and cons which a user must be aware of. We have compiled a detailed list of the advantages and disadvantages of the buy now pay later India service.

Advantages

BNPL is a distinct credit resource that links e-commerce websites, consumers and fintech firms. The advantages of this arrangement are as follows:

  • The timeframe to repay the borrowed amount depends on the amount paid by the service provider. The repayment tenure can go up to 90 days.
  • There is an increased convenience as the EMI gets deducted from the borrower’s account directly, thanks to the link between the BNPL service provider and the borrower’s bank account. This feature will eliminate the risk of late payments.
  • Making a payment through BNPL results in increased savings.
  • It increases affordability 
  • There is no cost of EMI
  • It is hassle-free with a simple and transparent process
  • The borrower gets the freedom to choose their repayment tenure
  • The transactions carried out through this service are safe and secure. Thus, eliminating the risk of fraud 

Disadvantages 

Buy Now, Pay Later (BNPL) may be a boon to the customer by giving access to instant credit but it also has its downside. The disadvantages can be summarised as follows.

  • If the funds in the linked bank account are low then, the auto-payment facility may lead to a failure resulting in additional bank fees and interest charges.
  • The task of returning a commodity may become difficult if the payment was processed through BNPL.
  • Any late payments may affect the borrower’s credit score.
  • There are no offers or additional benefits 
  • Regular deductions may lead to a low credit limit since the limit is decided based on the account balance.

Difference Between Personal Loan and Buy Now Pay Later

Personal loans and BNPL can be differentiated based on the following criteria:

Personal Loan BNPL
More than INR 25 lakhs may be offered as a loan A maximum amount if INR 1 lakh is offered
The loans can be secured and unsecured The loans offered are secured
Interest is calculated on the principal amount The interest is not based on the principal amount
The funds can be accessed for any purpose The utilisation of funds is restricted
The repayment tenure of a personal loan is 60 months or more. The tenure is comfortable enough to pay the EMIs with interest rates Buy Now Pay Later needs to be repaid within the time frame of 14 – 90 days. This tenure is accurate, keeping in mind, the EMIs are interest-free.

Difference Between Credit Cards and BNPL

One can differentiate between credit cards and BNPL in the following manner:

Credit cards BNPL
A credit card has hidden charges BNPL is transparent and follows the model of the low-cost price
To avail of a credit card, the applicant credit history must be good Buy Now Pay Later does not require a credit history
Getting approved for a credit card is a tedious process  BNPL has easier approvals
Credit card benefits like cashback, air miles on purchases, reward points etc. There are no benefits offered on BNPL
Credit cards have a more flexible acceptance policy. While certain e-retailers and fintech companies offer BNPL service/facilities
Credit cards have a regular interest-free term. BNPL;’s interest-free credit periods can last up to 48 months 
The applicant has the option of paying only the “minimum due” amount on credit cards EMI has to be paid at a fixed time

Interest Rate Comparison (Credit Card vs BNPL)

A comparison has been drawn between the interest rate of BNPL and credit cards in the table below:

Credit Cards BNPL
Interest Rate Up to 48% Interest Rate Up to 24%
Fixed interest rate Variable interest rate

The pandemic can be attributed to the growth of BNPL service providers. Due to lockdowns’ rising need for e-commerce services and consumers’ preference to split large costs into smaller interest-free EMIs, BNPL emerged as a popular choice. Although Buy Now, Pay Later India has many benefits, a borrower should still exercise caution when applying for one since it is still a loan. Even though BNPL approvals are simple to obtain, late payments might lower a borrower’s credit score. Therefore, to preserve a good credit score, timely payments must be made.

What happens if I don’t pay BNPL?

A payer will accrue a sizable debt if they don’t repay the BNPL amount because the company will keep adding interest to the amount that needs to be paid. Further delaying the payment will damage the credit score, making it more challenging for them to obtain loans or credit cards in the future. If the money is not paid on schedule, the BNPL facility might not be available in the future. Even if a payer is permitted, the BNPL firm will probably charge an extremely high-interest rate.

BNPL Companies in the Indian Market

There are many BNPL companies in the Indian market that offer the beneficial service of buy now pay later. One can take aid from the following platforms.

  • ZestMoney
  • Flexmoney
  • Simpl
  • Amazon Pay Later
  • Ola Money Postpaid
  • Capital Float
  • Paytm Postpaid
  • LazyPay
  • EPayLater

The Future of Buy Now Pay Later

The strategy will draw more clients to make an instant purchase of the item of their choosing, which bodes well for the future of BNPL. Most lenders who offer this facility offer free EMI repayment, which is anticipated to become the preferred payment option in the future, particularly among young people.

However, at its core, it is still a loan that the consumer must ultimately repay. Given that not everyone will be able to return the loan in full within the agreed time period, the lenders providing this service will need to exercise caution when providing it. Customers must comprehend that late payments attract interest charges and a reduction in credit scores. If clients can use the facility correctly and pay the balance on time, buy now, pay later has a bright future. Till then, happy shopping!

Buy Now Pay Later (BNPL) – Frequently Asked Questions (FAQs)

What is a BNPL transaction?

BNPL makes the payment on the behalf of the borrower. The amount has to be paid by the borrower in a specific time period. This can be marked as a BNPL transaction.

How does BNPL work for banks?

For retail banking, BNPL will probably result in higher borrowing and spending rates, while for commercial banking, it typically results in the inclusion of new services centred on cash management.

What is the BNPL platform?

Buy Now Pay Later or BNPL is a platform which allows a person to get instant credit to make a purchase. The amount to be repaid is interest-free.

Is PayPal a BNPL?

Yes, PayPal is a BNPL.

Who is the biggest BNPL company?

CashE is the biggest BNPL company.

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