If you shop online, you must have seen the option of ‘Buy Now, Pay Later’ (BNPL). These schemes look very attractive – buy now and pay later gradually, that too without interest. But have you ever thought that even a small mistake made in this facility can badly damage your credit score?

In fact, defaulting on BNPL can drop a person’s credit score as much as missing a big EMI and sometimes even more.

What is BNPL and how does it work?

BNPL is a short-term credit facility offered by many e-commerce sites and fintech companies. In this, the customer can buy a product and pay for it after a few weeks or months. Sometimes this facility is available without interest, while in some cases, processing fees or interest may also be applicable.

The specialty of BNPL is that it does not require a long process or income documents like traditional credit cards, which has made it very popular among the youth and first-time credit takers.

Also read: Your “Buy Now, Pay Later” habit is costing you a lot more than you think

BNPL is considered a separate short-term loan

Cautioning borrowers, Adhil Shetty, BankBazaar Co-founder and CEO, says, “Each BNPL purchase is a separate short-term loan, often across multiple platforms. Every missed payment shows up as a separate default, signalling a pattern of delay that lenders see as financial indiscipline.”

Even small delays attract late fees, quietly adding to your debt, warns Shetty. “The late fees and penalties associated with BNPL are significant. A Rs 1,000 monthly BNPL may have a late fee of Rs 300. While the amount looks small, it is actually 30% of your EMI. If you have multiple BNPLs running and default on them, then these penalties can compound rapidly. It takes very little time for the outstanding to balloon and become unmanageable.”

A small mistake, big impact

Suppose, you made a purchase of Rs 1,000 using the BNPL mode and then by mistake did not repay it on time. You may think that this is a small amount, but for the credit bureau, this is also a default. And this report can drop your CIBIL or Experian score.

In comparison, a default in a large EMI like a home loan or car loan does not have as direct impact on the score, because the credit bureau considers that loan to be long-running and secure.

Also read: 3 step retirement blueprint for a Rs 1 lakh monthly income

BNPL may also impact your other loans, including home loan

Because BNPL shifts focus to consumption and discretionary spending, every missed EMI is looked upon as overspending and an inability to manage credit responsibly and this can have a larger impact on your overall credit score and your ability to borrow credit for your more urgent or long-term needs, such as a home loan, says Shetty.

According to him, it is not a good idea to consider BNPL as ready cash. “Such a perception will only lead you to overleverage your credit and end up in a debt trap. Plan every repayment before you spend. Do not access credit just because it is available. Even a slight misstep can cost you financially in the short term and long term.”

Small loans, more impact – why?

Facilities like BNPL are usually unsecured loans and have very short tenures. So, if there is a default, it signals to the bureaus that the person is not able to repay even small and short-term loans on time – which raises questions about repayment discipline.

Payment history weighs up to 30-35% in a credit score. So a BNPL default, especially if you have made a very limited number of credit transactions, leads to a greater drop in the score.

Also read: Follow ‘Chanakya Niti’ for your wallet, and you could be set for life  

CRIF and CIBIL are also reporting

Earlier, it was not common for BNPL non-payments to be reported to credit bureaus. But now fintech companies like ZestMoney, LazyPay, and ePayLater etc. report such non-payments to credit bureaus.

This means that if you do not repay the money taken from BNPL on time, then this information is directly added to your credit profile.

What is the lesson for the user?

Do not take BNPL lightly – it is also a type of loan, and defaulting in it is as serious as in a credit card or personal loan.

Do not forget the payment deadline – BNPL has short payment dates, so keep reminders on in the app or set auto-debit.

Take only as much as you need – If you are already burdened with loans, avoid BNPL.

Keep an eye on your credit score – Do check your CIBIL or other scores from time to time, so that you can know whether any small mistake is harming your credit profile.

Summing up…

Buy Now, Pay Later is a great facility if you use it wisely. But a little negligence in this can cause serious damage to your credit health. A mistake of even Rs 1,000 can deny you a home loan, car loan or even a credit card in the future.

So use BNPL, but don’t ignore it thinking it’s a ‘small thing’. It demands responsible credit behaviour just like any other big loan.