BNPL Vs Credit Cards Vs Personal Loans: Which is right for you?

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September 29, 2021 11:10 AM

BNPLs, credit cards and personal loans are different types of loans, but all need to be used in a highly disciplined manner.

Credit cards score over BNPL for universal acceptability as the latter is still limited to partnering merchants only, albeit the service providers are regularly adding hundreds of partners.

Consumers, especially the millennials and Gen Z, are today looking for simplified micro credit solutions to better manage their recurring and occasional purchases which can be applied for easily and availed for seamlessly. All these factors have led to the massive popularization of Buy Now Pay Later or BNPL services in India in the last few years.

With over 30 focused start-ups, a few e-commerce giants and even leading banks and NBFCs now joining the bandwagon, BNPL services in India are making rapid progress in customer onboarding, merchant partnerships and attracting investments.

According to Bankbazaar, BNPL services have been a part of the global digital lending ecosystem for over 15 years now. But the pandemic has been a stimulant for its massive popularity in the recent past in conjunction with the rise of e-commerce, deepening mobile internet penetration and growing redundancy of cash transactions, especially in countries like China, the US, Australia, and India.

What is BNPL?

A BNPL service allows customers to make eligible purchases which can be split into easy instalments or repaid at a later date (within the repayment cycle) at zero-to-low interest charges. BNPL service providers offer customers short-term micro-loans for specific purchases usually starting at Rs 2,000 and going up to Rs 1 lakh in credit limits, with repayment cycles in the range of 14 days to 30 days (up to 90 days, in some cases) depending on the terms and conditions of the service provider.

However, late-payment penalties (and interest charges, in a few cases) could be levied for repayments beyond the due dates while BNPL providers can report about late payments to credit bureaus potentially hurting the credit scores of such users.

The BNPL service providers often use new-age mechanisms to evaluate the creditworthiness of customers and the entire process of customer onboarding and credit limit sanction is usually completed digitally in minutes with minimal documentation requirements. A few players also offer pre-approved BNPL credit limits to select customers, the Bankbazaar study says.

BNPLs can currently be enjoyed at a growing number of e-commerce, food-ordering, ride-sharing, travel booking, online groceries and services websites, and even on edu-tech portals among hundreds of other merchant platforms. The transactions can be made seamlessly during checkouts in a safe and secure one-tap manner without having to enter card details or OTPs.

Some BNPL service providers also offer extra incentives to customers in the form of additional discounts or cash back for availing of their facilities, making timely repayments or on specific transactions. These instant funds-offering platforms for consumer purchases generally make money through merchant commissions and late fees, not interest charges.

How does BNPL compare with personal loans and credit cards?


Credit cards score over BNPL for universal acceptability as the latter is still limited to partnering merchants only, albeit the service providers are regularly adding hundreds of partners. Credit cards also provide perks and privileges, helping users save more and access higher lifestyles through their transactions. Cards could offer higher spending limits though they could be tougher to obtain in comparison due to the more stringent underwriting norms. BNPLs don’t have annual, processing, or renewal fees, which cards sometimes do. The critical differentiator, however, is the interest charges that are usually not levied on BNPL services – users have to pay a non-cumulative fee for late payments unlike credit cards, albeit some cards also now offer zero-interest EMIs.


Personal loans are big-ticket and all-purpose, unsecured financing facilities with credit limits much higher than BNPL services. However, higher charges apply, unlike BNPL. Another critical differentiator is revolving credit – BNPLs offer this while personal loans do not, being one-time loans. In addition, a customer’s age, income, credit score, occupation, etc. are scrutinised by the lenders to ascertain loan eligibility, though the application process and loan disbursal are quick for pre-approved loans. BNPLs, on the other hand, often use new-age mechanisms to ascertain the borrower’s creditworthiness, usually taking just a few minutes.


Credit cards could come with a wider range of benefits, a higher credit limit, and universal acceptability but with cumulative interest charges for late payments. BNPL services are smaller but simpler credit facilities for consumer purchases from partnering merchants often result into EMIs involving no interest charges but only a one-time fee in most cases. They might also be easier to sign up compared to non-pre-approved credit cards. These factors make them highly suitable for users looking for short-term micro credit facilities, especially those ineligible for credit cards.

Personal loans are for big-ticket financing needs, often during an emergency cash-crunch, and are not recommended for smaller discretionary purchases owing to the interest charges involved.

BNPLs, credit cards and personal loans are different types of loans, but all to be used in a highly disciplined manner. Users must not over-borrow and minimise using them to finance lifestyle and consumption. They must read the fine-print carefully, understand the charges, and ensure their dues are always paid on time, informs Bankbazaar.

Credit cards and personal loans charge interest for late payments. BNPLs charge a penalty. Reckless usage and late payments with any of these facilities can jeopardize the user’s credit score, hurting their chances to get the best offers when they apply for other loans in the future.

As far as BNPLs are concerned, they are a game-changer in offering seamless micro-credit solutions to millions of customers. However, informed usage and utmost financial discipline are key to maximising the lending value just like any other credit product.

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