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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 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.
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.
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:
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.
BNPL is a distinct credit resource that links e-commerce websites, consumers and fintech firms. The advantages of this arrangement are as follows:
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.
Personal loans and BNPL can be differentiated based on the following criteria:
|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:
|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|
A comparison has been drawn between the interest rate of BNPL and credit cards in the table below:
|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.
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.
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.
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!
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.
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.
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.
Yes, PayPal is a BNPL.
CashE is the biggest BNPL company.
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