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BNPL Loans : Shoud You Opt for One?

BNPL Loans : Shoud You Opt for One?

  • By Saral Credit
  • October 20, 2021

How many of you're fond of shopping? Well, most of you would raise your hands and agree with the fact that shopping is exciting. However, most of the time, you are always stuck at a point when you fall short of funds yet find something amazing to check out.

Earlier, there was only one method to purchase any commodity, i.e., pay in exchange for cash. Today, the concept has changed with the introduction of credit cards. However, an addition to the credit cards is the concept of Buy Now Pay Later, which is also known as BNPL Loan.

What is a BNPL Loan?

As the name explains everything, with BNPL Loan, you can buy any commodity with no cash required and pay the price later. Generally, you sign up with a BNPL provider and make your purchase right away without paying a penny for the product.

Once the lender pays your amount, you need to repay the amount in a given time frame. You get the option to entirely pay full upfront or convert the entire amount into monthly EMIs.

In case you miss the repayment deadline, the lender can charge you interest on the loan amount. In case you further skip to repay the loan, your credit score will be affected.

How does BNPL Loan Works?

The entire BNPL loan works in three steps that are listed below:

  • Purchase any item from the partnered websites.
  • Select the "Buy Now Pay Later option
  • Make a small deposit initially and check out the purchase process
  • The BNPL lender will then deduct the amount from your account via EMI.

It is interesting to know that the EMI debited under BNPL is completely interest-free. You can easily pay the EMI before the deadline via bank account, credit card, or UPI.

What are the Benefits of BNPL Loans?

BNPL loan benefits you various advantages; some of them are listed below:

Affordability: Not every buyer is in condition to pay full upfront for a product. However, they can pay monthly via EMI. Hence, 'Buy Now Pay Later' becomes an affordable option to purchase your item.

Get Instant Credit: Yes! Nowadays, people always appreciate the availability of instant credit options that help you pay for any essentials and clear the repayment later. However, you are mostly offered with the BNPL limit of 60,000 rupees.

Completely Safe Transaction: Online frauds are common, but you can avoid such frauds and make a successful transaction with adequate knowledge. BNPL always provides you with a safe and secure transaction option without affecting your sensitive data.

Pay as You Want: Post payment via the BNPL option; you can choose from various repayment options. You can either pay full in a single go or convert the entire sum into monthly EMIs.

No Interest Cost: The biggest benefit of considering the BNPL option is getting freedom from EMI interest rates. This payment option doesn't charge you additional interest even if you pay the entire sum via EMIs.

How is Eligible for 'Buy Now Pay Later

Below listed are the eligibility criteria to take benefit of BNPL.

  • You must be a resident of India
  • You must reside in a major tier I or tier II 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

How are Credit Cards Different from the BNPL Option?

Many of you would consider credit cards and BNPL the same. However, they have some differences, which you must know before selecting one among them.

Hidden Charges: Credit cards are always accompanied by hidden charges applicable every year or redemption of reward points, etc. However, the BNPL option provides you with a transparent platform where no hidden charges are applicable.

Credit Score: Credit card and credit card limit are two points that rely on a strong (good) credit score. It means you can get a credit card only if you have a good credit history. However, the BNPL option is independent of your credit history.

Interest-Free Period: With different credit cards, you get a standard interest-free period, which further depends upon the ongoing offers, availability of no-cost-EMI, etc. However, BNPL has the option of interest-free payments for up to 48 months.

Approval Process: Getting a credit card isn't easy as the application process is difficult and requires your credit checks. On the contrary, BNPL approvals are easy.

Reward Points: The biggest benefit of using credit cards is earning reward points. You can redeem reward points in exchange for cash, electronic items, or coupon codes. However, BNPL doesn't provide any such benefit to you.

Minimum Due: With credit cards, you get a minimum due amount that is must pay before the last payment date. However, BNPL doesn't have any minimum due amount. It means you have to either pay the upfront or pay it via monthly EMI; there is no third option.

Interest Rate: In case of late payment, both credit card and BNPL put a penalty where you need to pay the interest rate apart from the due amount. In Credit Cards, the interest rates can reach up to 48%, whereas in BNPL, it can reach up to 24%.

Who can provide you BNPL Option in India?

This is an important question that every one of you is looking for. There are numerous BNPL providers in India. Below is the list of top BNPL players in the Indian market.

  • Amazon Pay Later
  • Capital Float
  • EPayLater
  • Flex money
  • Flipkart Pay Later
  • LazyPay
  • OlaMoney Postpaid
  • Paytm Postpaid
  • PineLabs
  • Simpl
  • ZestMoney

Post covid-19 pandemic across the globe, people are facing financial crisis a lot, and hence the BNPL is in big demand. People cannot pay the total upfront for the products and prefer segregating the final amount into monthly EMIs.

With 'Buy Now Pay Later,' you get many benefits that are not available with the traditional credit card. Hence, you can consider it a great option to make purchases during the festive season or other occasions.

What's the Future of the BNPL Option?

If the customers are getting tons of benefits, but the BNPL lenders have limited opportunities, what can you predict about its future? This is the main query that can confuse many of you before opting for this option.

As customers are opting BNPL option more often than credit cards, its demand will gradually increase. Further, its various benefits are already alluring the customers, making it the first preference over other payment options. It is a fascinating option, especially for youth who always have fixed pocket money and are financially unable to own anything they want (within budget).

The interesting question that many of you would have in mind is how the BNPL lenders make money?

The BNPL lenders make money from sellers and consumers. Sellers pay a fee between 2-8 percent of the purchasing amount if any customer opts for the BNPL option. Moreover, the BNPL option charges customers between 10-30 percent based on their credit history and period of repayment. However, if the customer repays EMI on time, no interest rates are applied to the price. Interest rates are applied to the customer only when they fail to repay the EMIs on time.

For your information, Buy Now Pay Later is a type of loan that you take to pay for a product and repay the amount via EMI (Equated Monthly Installments). Initially, no interest rates are charged on the installment, but once the last repayment date passes, your total amount is added with the interest rate.

Everyone considering BNPL looks for the interest rates before buying any product online. However, BNPL doesn’t charge you for a specific tenure.

If you are interested in the ‘Buy Now Pay Later option, you should know the platform that offers you BNPL. E.g., Amazon provides you with the ‘Amazon Pay Later’ option below every product you buy.

It's important to note that BNPL also has an impact on credit score. Till you repay the EMI on time, you will not be charged with a penalty. However, if you miss the repayment and have dues to pay, you will be charged extra. If you continue missing the payments, it will definitely affect your credit score.

Nowadays, many banks are also offering the BNPL option. Some of the banks, including Kotak Mahindra, Axis Bank, ICICI Bank, etc., are offering the BNPL facility to their customers. Starting from 1st July 2017, 18% GST is applicable on the banking services and all products available online.

BNPL option is also available on many online and offline platforms, which makes it easy to buy your favorite products and checkout with easy EMIs.

So, if you now find the option of ‘Buy Now Pay Later’ when buying online products, you should not get confused with the credit card. However, it's essential to read the T&Cs and check for penalty charges before checkout before selecting the option.