Buy Now Pay Later option Vs Credit Cards: Which should you choose for festive shopping?

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October 15, 2020 12:53 PM

Online festive sales such as Flipkart Big Billion Days and Amazon's Great Indian Festival are starting today. This is good news for many people as they wait for such sales to make big purchases.

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Online festive sales such as Flipkart Big Billion Days and Amazon’s Great Indian Festival are starting today. This is good news for many people as they wait for such sales to make big purchases.

These online platforms have partnered with various banks, credit card companies, and digital payment wallets to offer discounts and cashback. Even though credit cards have always been one of the popular options among people, the Buy Now Pay Later (BNPL) service has also gained popularity in recent years. Among the two options, credit cards and BNPL, choose the one that suits you the best.

Credit cards are an instant replacement for cash, also they come with a free credit period depending on the credit card company. Hence, credit cards are widely popular especially among millennials. However, not all are eligible for credit cards. To be eligible for a credit card, individuals should have a good credit score.

Experts say with the advent of technology and penetration of the internet, modern-day tech-savvy millennials are found leaning ever more towards convenience, and the Buy Now Pay Later (BNPL) system offers just that. With the buy now pay later system, you will be allowed to make purchases and accumulate your bills into one account. Thereafter, the consolidated bill is paid at one go fortnightly or monthly, depending on the BNPL service that you use.

Nityanand Sharma, Co-Founder, and CEO, Simpl says, “The BNPL follows the concept of maintaining a running account system with a local Kirana shop. You’d buy groceries and your bill would get added to your account, which you’d clear at the end of the month.” In simple terms, BNPL is the digitized version of maintaining a running account with merchants where you can make multiple transactions and then clear your dues at once.

Credit cards and buy now pay later services to offer the same facility wherein you could pay for your purchases at a later date. Credit cards offer a credit-free period of 45-50 days depending on the provider, the same way BNPL services usually offer the rest of the month to clear the dues since the time the services have been used.

Credit cards charge a hefty percentage from borrowers if dues are not paid during the credit-free period, ranging from 36 to 42 per cent per annum. Usually with BNPL once the bill is generated, a grace period of 5 to 10 additional days are offered to the borrowers to clear their bill, and if the bill remains unpaid beyond that, a late fee of around Rs 250 to 300 is charged. Sharma of Simpl says, “We do not charge any interest or fees. We take a commission from our merchants on the transactions done through Simpl. This number ranges from 1 to 3 per cent.”

Here is how why BNPL score over credit cards;

1. Relaxed eligibility criteria – For availing a credit card you need to fulfill some eligibility parameters which include your income, credit history, credit score, etc. because of which a lot of new to the industry borrowers fail to get eligible for a credit card. BNPL on the other hand doesn’t require users to share their card or bank details. Also, it doesn’t mandate disclosure of any financial information.

2. Free of cost – Most often seen credit cards involve a joining fee along with an annual fee. In the case of the BNPL service, it is free of cost, with no usage fee either. Borrowers just need to pay their outstanding bills, failing to do which, a penalty is levied.

3. Ease of use – BNPL eliminates disclosing of any bank account details making it a safer and swifter option of payment. Borrowers also need not share OTP.

4. Lower charges – There is no pressure of hidden charges or maintenance fees, having access to micro-credit can be life-changing and this pandemic has taught us just that.

BNPL platforms allow one-tap purchases for borrowers which are convenient, simple, and easy. Also, there are no hidden charges, unlike credit cards. Moreover, BNPL platforms are secured with security encryptions that keep borrowers’ transactions safe from the possibility of cyberattacks.

Having said that, note that BNPL services are not available to all, the credit decisions in BNPL are done by machine intelligence with no human involvement at all. Sharma of Simpl says, “Furthermore, the credit limit in the BNPL is allowed based on the borrower’s spending behavior. This is particularly helpful for individuals who have no credit history.”

Experts say with the ease, security, and affordability provided by this system of payment, borrowers can easily avoid the hassle of multiple payments by consolidating them with one.

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