Buy Now Pay Later (BNPL)

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‘Buy Now, Pay Later’ (BNPL) offers seem to be the flavour of the season as many e-commerce, banks and retailers have lined up such schemes for the upcoming festive season. A large number of borrowers can now enjoy the short-term credit offered through BNPL even without a credit history. The BNPL payment scheme is the latest craze among young cash-strapped shoppers seeking instant gratification.
How Buy Now, Pay Later Works

Using a Buy Now, Pay Later (BNPL) option to spread out payments on a big buy resembles a personal loan in that your payments are split up into equal installments over time, typically just a few months. These loans are often interest-free as long you make your payments on time and in full. This differs from a traditional credit card purchase which charges you interest for every month you carry a balance, unless you’re approved for a card with an introductory 0% APR offer on purchases.

Eligibility criteria for Buy Now Pay Later

  • You must be a resident of India.
  • You must reside in a major tier 1 or tier 2 city.
  • You must be aged above 18 years. The maximum age of eligibility in some cases can be up to 55 years.
  • You must be a salaried individual.
  • You must have a bank account and all the KYC documents in place.

Thing to consider before you shop using BNPL

1. Availing a BNPL

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.

2. Read up on the Returns Policy

It’s also useful to know the return policy for the product you’re purchasing and the BNPL service you plan to use. Even if you return an item to the merchant where you bought it, you may still have to continue paying your loan until the return is processed. How returns or refunds impact your remaining payments may vary among companies. 

3. Cost of Borrowing

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.

4. Understand the Payment Options and Terms

BNPL companies tend to offer multiple options and terms for your purchase. For example, several BNPL platforms feature the ability to split your cost into four payments due every two weeks. If you make all the payments on time and in full, you may not pay any fees or interest.

Some companies also offer longer-term loans, which can range from 3 – 36 months. Depending on the service you use, these loans may include interest charges in addition to the purchase price. Be sure to read up on the payment details and terms before using a Buy Now Pay Later or similar service so you know what to expect.

5. Know what can be bought with BNPL

In recent months, e-commerce companies, fintech players and even banks have started offering BNPL facility for shoppers. Amazon and Flipkart both offer this payment option on their platforms as do banks like HDFC Bank and ICICI Bank. Further, several app-based fintech platforms like PayTM, PhonePe, LazyPay, Moneytap, CASHe, Kissht, among others, extend BNPL loans. Nowadays, this option is available for purchase of wide-ranging items from gadgets to apparel, including food delivery, travel booking, grocery and other spends.

BNPL vs. Credit Card

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.

BNPL vs. Personal Loans

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.

Why are BNPL services gaining more attraction as compared to Credit cards?

Indian consumers, like all consumers, seek trust and transparency in their transactions – something that is in huge deficit when it comes to traditional credit cards. There is a clear reluctance in consumers towards using credit cards and the biggest source of the disinclination comes from the ‘hidden charges’ or the various transaction fees a credit card company charges its customers.

Annual maintenance fee, cash advance fee, surcharges on petrol, and GST charges are just some of the extra costs a user incurs for using a credit card. Paying at the time of delivery builds trust in the transaction and cash on delivery is a true 1-click checkout and this is what BNPL services offer consumers.

The BNPL service is completely digital, online and instant. It is easier, quicker to apply and get approvals. There is no need for an agent to come over for paperwork.

The merits of BNPL such as easy registration, the convenience of use and quick check-out, speak directly to the digital-savvy, card-averse customers who demand speedy and convenient small credit at their fingertips. Millennials use BNPL not only to buy essentials but also to fulfil their aspirations, such as pursuing an upskilling course or travelling to a dream destination.