Buy Now Pay Later or BNPL is a financing facility that allows customers to buy products or services without having to worry about immediate payments. Many e-commerce sites, banks and retailers are offering this facility for easy shopping.
To avail of BNPL, all you need to do is sign up with a lender offering a BNPL facility. The cost will be paid by the lender at the time of purchase. You can repay the amount in a lump sum or through EMIs. Read on to know how BNPL works, how is it different from a personal loan, and its benefits and disadvantages.
How does Buy Now Pay Later Work?
With Buy Now Pay Later, you can make an instant purchase using the available credit balance pre-set by the lender. In other words, it is a short-term loan product where the BNPL provider settles their client’s bills with the merchant or service provider. Later, the borrower/buyer repays the amount at a future date with little or no interest.
Benefits of Buy Now Pay Later
Here are the benefits of Buy Now Pay Later:
EMI with zero interest.
Instant approval of credit.
Allows customers to make purchases of small amounts.
Ability to choose the repayment tenure
Customers with no credit scores can also avail of this facility.
Customers not eligible for credit cards can avail of the BNPL facility.
Lower interest rates for late payments compared to credit cards.
Easy and safe transaction process.
5 Major BNPL Service Providers in India
Amazon Pay Later
Ola Money Postpaid
How is the Buy Now Pay Later Credit Amount Decided?
While there is no hard and fast rule to decide the credit amount, a credit limit is decided depending on different algorithms and varies from one company to another. These algorithms come up by analysing the buying patterns and habits of the customer.
Difference between Buy Now Pay Later and Credit Card
Buy Now Pay Later
You do not need a credit score to avail of BNPL
A good credit score is mandatory to be eligible for a credit card
Slightly difficult approvals
Have the option to pay the minimum due amount
Have to pay the pre-set EMI amount on or before the due date
You earn cashback, reward points, etc.
Zero or low-interest rate.
The interest rate can go up to 48%
Difference between Buy Now Pay Later and Personal Loan
Buy Now Pay Later has similarities with a personal loan in terms of nature. But there are some fundamental differences between them.
Buy Now Pay Later
No interest is applied to the principal amount
Interest is levied on the principal amount
The maximum loan amount can be up to Rs. 1 lakh
The maximum loan amount can be more than Rs. 25 lakh
Restriction on the usage of the amount
No restriction on the loan amount
Short-term financing solution. Loan repayment tenure can be a maximum of 90 days
Long-term financing solution. Loan repayment tenure can be extended up to 60 months
Secured in nature.
Generally, unsecured in nature.
What are the Disadvantages of Buy Now Pay Later?
BNPL facilities can develop an unhealthy habit of overspending among consumers.
Late or failure in repayment can lead to a low credit score for an individual.
Repayment charges may differ from provider to provider.
Should You Opt for Buy Now Pay Later?
In many situations, Buy Now Pay Later is a hassle-free and convenient way to make a quick purchase. Low to no interest rates also makes it customer-friendly. For small, short-term purchases, BNPL is beneficial. However, you must also take into account that spending habits will have no check and can hamper your future financial planning. While the world is moving towards easier payment options, you must also not lose sight of your financial goals. Use BNPL facility only where and when necessary.
Buy Now Pay Later facility has made payments easier than ever. It is changing the way payments work and how consumers shop. Check your eligibility and register yourself to avail of a BNPL facility. Especially, if you do not have a credit card yet. However, do keep a check on your spending habits. You must also save and invest to secure a better financial future.
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Q1. How can BNPL help you build a good credit score?
Ans:Buy Now Pay Later comes with facilities such as no interest on repayment and option to choose the repayment method and tenure. With such facilities, one with no credit score can build a good credit score, providing he/she abides by the conditions of repayment.
Q2. Do banks offer BNPL facilities?
Ans:Yes, even banks provide BNPL facilities now. Banks such as Kotak Mahindra, ICICI and Axis Bank are providing Buy Now Pay Later facilities.
Q3. What can be the consequences of not repaying the BNPL amount?
Ans:There can be a lot of consequences of defaulting in repayment of the BNPL amount. Firstly it will affect your credit score, which will make it difficult to avail of loans in future. The provider will also start charging interest on the loan amount as soon as the tenure ends. In some scenarios, it might be difficult to avail of another BNPL, and even if you get one, likely there will be a high-interest rate.
Q4. Do you have to make a down payment in Buy Now Pay Later?
Ans:When you are making a purchase using BNPL facility, the retailer will make most of the payments while you have to make a small down payment. This amount varies from one retailer to another, but usually, it is 25% of the whole payment.
Q5. How can BNPL be beneficial over credit cards?
Ans:Credit card and BNPL payments both have the feature in common that it delays the payment depending on affordability. However, credit cards have a high rate of interest which can go up to 48% at times. However, BNPL generally does not have any interest rate if the repayment is made within the due time. Post that, they might charge 0 to 24% interest which varies from one provider to another.
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