For millions of young consumers who are cash-strapped and don’t possess a traditional credit card, ‘Buy Now, Pay Later’ or BNPL has been the latest craze. In India, the short-term financing facility is offered by several online merchants and financial companies, making it a convenient alternative to credit cards.
Buy Now, Pay Later
Buy Now, Pay Later or BNPL is a payment option where a shopper can make a purchase without having to pay for it instantly from his pocket and rather pay within a stipulated interest-free period. The company providing the facility settles the bill outright with the merchant on behalf of the buyer and the buyer gradually pays back in three or more installments.
The repayment of the amount can either be done in a lump sum or through no-cost equated monthly installments (EMIs). Failure in repayment within the given tenure can lead to the BNPL provider charging interest on the amount. It can also impact the overall credit score of the buyer. Generally, the interest-free period varies from 15 to 45 days and the credit limit can range from Rs 500 to Rs 30,000.
How BNPL works
All BNPL service providers share the operational model with the terms and conditions. Buyers accessing the BNPL facility for the first time need to complete the Know Your Customer (KYC) formalities on the provider’s platform. Buyers then need to make a purchase using the Buy Now, Pay Later option, make a small down payment of the overall amount and the remaining amount gets deducted in a series of installments. The repayments can be made through bank transfer, cheques, credit cards, debit cards, or directly from the bank account. BNPL can be availed for purchasing a wide range of products and services like gadgets, apparel, food delivery, travel booking, grocery, and other spending.
Advantages of BNPL
The key advantages of buy now, and pay later are increased affordability and instant access to credit. The transactions are also very safe and secured and the overall process is very simple and transparent. There is no interest included in the EMIs and the buyers can also select the repayment tenure.
BNPL vs. Credit cards
Credit cards are almost similar to the BNPL as they offer the option of delaying payment for a stipulated time and charge no interest if repayment is done by the due date. However, the two differ in certain aspects; the primary one being that the credit cards can be used with any business that accepts payment mode and the BNPL can only be used in transactions with a partner merchant. Also, there can be hidden charges on credit cards while the BNPL is a transparent and low-cost pricing model. Apply for a credit card includes strict eligibility criteria like credit score, income threshold, etc., while the BNPL facility can be availed much more easily.
BNPL vs. Personal Loan
In personal loans, interest is levied on the principal amount, while BNPL applies no interest. While personal loan offers both secured and unsecured loans, BNPL loans are only secured. Also, while the usage in the BNPL is limited, there is no restriction on how the money can be spent on personal loans.
(By Mahesh Shukla, Founder & CEO, PayMe)