Nowadays, you will see a new payment option alongside Cash on Delivery and Credit/Debit Card. It is the 'Buy Now Pay Later option that gives you the facility to buy any product and convert the total upfront into three monthly interest-free EMI.
The concept of Buy Now Pay Later is already growing across various countries, and India is no different.
FACT: In the United Kingdom, nearly one-fifth of the population uses BNPL as a payment option.
However, for a first-time user, it's crucial to know how this Buy Now Pay Later option works. Its working flow is as below:
BNPL converts your one-time purchase amount into three payments that need repayment after every 30 days. It means your purchase amount is turned into 3 EMIs. If you are repaying the EMI on time within a given time frame, you will enjoy no interest payments. This is hence a great option if you have sufficient funds to repay the BNPL loan in the first 60 days.
People unfamiliar with the BNPL loans must know their Pros and Cons when selecting this option. Below are the Advantages of opting for a BNPL Loan.
Instant Credit Access: Most loan assets require enough time to get approval and hence consume your time & manpower. With BNPL, the entire process is eliminated as it gives you instant access to credit through the shortest credit checks and KYC process. The BNPL option is available when buying your favorite item online, which doesn't require a bank visit or documentation. With this option, merchants ensure you get a straightforward buying experience and checkout within minutes.
Complete Ease of Use: The Buy Now Pay Later solutions are offered with targeted and customized technology that ensures a hassle-free process. Nowadays, getting a BNPL loan is as easy as scanning a UPI code and completing a transaction. It saves your time and effort. Above all, BNPL Loan provides a quick and shortest way to checkout on any merchant.
Complete Free of Interest: Technically, 'Buy Now Pay Later' gives you a 100% interest-free line of credit. However, it's essential to know that the zero-cost credit only works if you continue repaying the dues on time. The BNPL providers primarily earn via commission from merchants to offer their services. Commission charges vary entirely from one provider to another.
Perfect for Bad Credit Holders: If you have a bad credit score, BNPL can also work for you. Yes! Consumers with bad credit ratings can apply for a BNPL Loan as most fintech BNPL providers don't do heavy credit checks for pre-qualification. You can qualify easily and get your loan quickly with a soft search.
Increase Your Credit Ratings: With the 'Buy Now Pay Later option, you can get an opportunity to increase your credit rating. If you take a BNPL loan and repay it on time, it will add to your credit rating and increase it with time. However, you must know that the credit rating is only affected by the BNPL if BNPL providers report to the credit bureaus.
Better Organize Your Finances: The biggest reason you should opt for a BNPL loan is to manage your finances smartly. Buy Now Pay Later is an excellent option if you don't have enough funds to make a smart purchase. It lets you buy now and pay it through three no-cost EMIs. This gives you a great opportunity to manage your monthly expenses and sort them wisely without facing monetary troubles.
With these benefits, you are now attracted to choose this option next time you make any purchase online. However, this doesn't mean the BNPL Loan is perfect for you. It also has some drawbacks that are important to consider when selecting.
Missed Payment Fees: Buy Now Pay Later loan gives you an interest-free loan for 60 days, ensuring you make the repayments on time. It means you are enjoying interest-free EMI for the given timeframe. However, if you miss any repayment or delay it, you will get high fees and penalties. The penalties on late or delayed payments vary from one lender to another.
Decline Your Credit Rating: It's obvious that taking a BNPL Loan can help you improve your credit score if you continue repaying the dues (EMI) on time and never miss it in any condition. However, the opposite of this is also true. If you miss any payment and get a penalty on your late payments, your chances are high to experience an adverse impact on your credit score.
Boost Impulse Buying: Like credit cards, BNPL Loans also activate impulse buying behavior. This results in buying on advance credit, more than your monthly spending limit. This initially satisfies you but later brings monetary troubles. Your purchase looks soothing for the first 30-40 days as you only pay one-third of the full payment. However, when you continue repaying the dues for multiple purchases, it creates trouble to overcome your financial crisis.
High-Interest Rate: The biggest drawback of taking a BNPL loan is paying high-interest rates. Yes! Buy Now Pay Later loans to come with a high-interest rate that puts an additional burden on your monthly expenses and degrade your budgeting efforts.
The eligibility for BNPL Loans is common for all who are planning to get it. Below are the basic eligibility criteria to get a BNPL Loan.
Numerous players in the market offer Buy Now Pay Later loans to customers. However, some of the players are top of the list. Below are some popular BNPL players.
There are certain differences between credit cards and the 'Buy Now, Pay Later. Let us take a look at them:
Hidden Charges: It's obvious to know about hidden charges associated with your Credit Card. However, BNPL Loan doesn't have hidden charges. Instead, it is an entirely transparent loan option available on your limit.
Importance of Credit Score: You need a good credit score if a credit card is your primary need. A good credit score can help you get a credit card with ease. However, BNPL doesn't require a strong credit score.
Acceptance: Credit card comes with broad acceptance. It means they can be used at a platform, bus stand, etc., that require significant acceptance. However, BNPL is presently limited to online merchants.
Ease of Approval: The biggest heck in getting any credit card is it requires checks of your credit score, which makes it challenging. However, BNPL loans are easy to get and save time and effort.
Cashbacks & Offers: Undoubtedly, credit card brings you a vast range of cashback and credit offers. However, BNPL loans don't put extra charges.
The stats clearly show that the future of BNPL Loans will grow in the near future. BNPL offers you a 3-months interest-free payment option that you can consider buying any product you want through online merchants. However, it is still a loan type that you need to pay on time and stay clean w.r.t. missed payments or defaulter.
It's tough to conclude that BNPL Loans are absolutely fine to choose. After all, it is a loan that you are taking for a small tenure. BNPL loans are good if you don't have a credit card and are still looking for an easy loan option when buying from online merchants. It gives you quick credit on online purchases and lets you convert the upfront amount into 3 EMIs.
Also Read- MUDRA Loans: What Are These?
If you have smart control over your spending behavior, you can proceed with a BNPL loan and enjoy an interest-free loan for a small duration. However, interest rates and penalties for missed payments are higher, which adds an additional burden on your finances. So, you shouldn't take this loan if you have impulsive buying behavior.
With that said, taking a BNPL loan is good, but you should ensure you pay the dues on time without late or no repayment issues.