• Buy Now Pay Later (BNPL)

    ‘Buy Now, Pay Later’ (BNPL) is a type of short-term financing which allows you to pay in installments by the end of the stipulated time period for making purchases. In India, quite a few online merchants and fintech companies are offering BNPL facilities to customers as a convenient payment method and an excellent alternative to credit cards.

    Accessible, transparent, and offering no-cost EMIs, BNPL is all set to change the lending landscape.


    What is BNPL Payment?

    BNPL also known as Buy Now Pay Later is a payment option where you can make a purchase without having to pay from your own pocket. Generally, you sign up with a company providing this facility who makes the payment when you make the purchase.

    However, once the lender pays on your behalf, you will have to repay the amount within a stipulated time period. When compared to a personal loan, no interest is levied under the BNPL scheme. You can either pay it as a lumpsum amount, or you can pay it via no cost Equated Monthly Installments (EMIs). If you fail to pay the amount within the given repayment tenure, then the lender will be liable to charge you interest on your amount. Further delay could impact your credit score severely.

    How does BNPL work?

    BNPL service providers share the same operational model with terms and conditions being the only differentiator. Here's how it usually works:

    • Make a purchase at a participating retailer.
    • Opt for the ‘Buy now, pay later’ option.
    • Make a small down payment of the overall purchase amount.
    • The remaining amount shall be deducted in a series of interest-free EMIs.

    Note: The payment of EMIs can be made via bank transfer, cheques, credit card, debit card or directly from the bank account.

    Advantages of BNPL

    Some of the benefits of BNPL are listed below:

    • Increases affordability
    • Instant access to credit
    • Safe and secure transaction
    • Can choose repayment tenure
    • No cost EMI
    • Simple and transparent process

    Eligibility criteria for Buy Now Pay Later

    The eligibility criteria you will have to fulfil to avail Buy Now Pay Later facility are:

    • You must be a resident of India.
    • You must reside in a major tier 1 or tier 2 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.

    Difference between Buy Now Pay Later and Personal Loan

    Some of the main differences between BNPL and personal loans are mentioned below:

    Personal Loan BNPL
    Maximum loan offered may be more than Rs.25 lakh Maximum loan offered is Rs.1 lakh
    Secured and unsecured loans are offered Only secured loans are offered
    Interest is levied on the principal amount No interest is levied on the principal amount
    No restrictions on how the money can be spent Usage is limited
    Tenure of up to 60 months may be provided Tenure of up to 90 days

    Difference between Credit Card and BNPL

    There are certain differences between credit cards and the ‘Buy Now, Pay Later’. Let us take a look at them:

    Credit cards BNPL
    • Hidden charges are levied on credit cards
    • BNPL follows a transparent and low-cost pricing model
    • You must have a good credit history to avail a credit card.
    • It is not mandatory to have a credit history
    • Credit cards come with more flexible acceptance
    • BNPL services/facilities are provided by select e-retailers and fintech organizations
    • Credit cards come with a standard interest-free period
    • Interest – free credit period can go up to 48 months
    • Getting approvals is slightly difficult
    • Easier approvals
    • You have the option of paying only the ‘minimum due’ amount
    • You have to pay the fixed EMI on the scheduled date
    • You can earn cashback, reward points, airmiles on purchases
    • No such benefits

    Interest rate comparison (Credit card vs BNPL)

    Credit cards BNPL
    Up to 48% Up to 24%
    The interest rate remains fixed The interest rate varies depending on a variety of factors

    The rise of BNPL service providers can be accounted for the pandemic. With the increased demand for e-commerce services due to lockdowns and consumers preferring to break down large expenses into smaller interest-free EMIs, BNPL has become a go-to option for many. ‘Buy Now, Pay Later’ has a lot to offer, however, it is still a loan and you need to be careful while looking to avail it. While you can get BNPL approvals easily, failure to make payments on time can hurt your credit score. Hence, just like other loans, you need to ensure that timely repayments are done to maintain a healthy credit score.

    BNPL players in the Indian Market

    Some of the BNPL players available in the Indian Market are given below:

    1. ZestMoney
    2. LazyPay
    3. Simpl
    4. Amazon Pay Later
    5. Ola Money Postpaid
    6. Paytm Postpaid
    7. Flexmoney
    8. EPayLater
    9. Capital Float

    The Future of Buy Now Pay Later

    The future of BNPL can be very bright as the concept will attract more customers to purchase an item of their choice instantly. Most of the lenders who provide this facility offer repayment at no cost EMIs which in future is likely to become the preferred payment option especially among the youth.

    However, within its core it is a still a type of loan which in the end the customer has to repay. The lenders offering this service will have to be careful in offering this facility as not everyone will be capable of repaying the amount within the stipulated time period. The customers will have to understand the failure to repay the amount on time to avoid interest and drop in credit score. The future of BNPL looks good provided the customers are able to use the facility properly and clear the amount on time.

    FAQs on Buy now pay later

    1. How does BNPL make money?

    BNPL makes money from both sellers and consumers. In case of sellers, they pay BNPL a fee ranging between 2% and 8% of the purchasing amount if the customer uses the BNPL facility. BNPL players also make money by solidifying their positions through various marketing or promotional spend given that the seller is able to increase conversion or traffic.
    BNPL players making money from customers by charging an interest ranging between 10% and 30% based on their credit score, repayment tenure, etc. As long as the amount is repaid on time, no interest is charged.
    However, there are customers who may not be able to repay the amount by the due date, on which a late fee is charged. The payment of late fee adds to the BNPL company’s revenue.

    2. Is buy now pay later an installment loan?

    Yes, BNPL is a type of installment loan as you pay the amount spent by you via Equated Monthly Installments (EMIs). After a certain period, interest is charged on the amount spent by you, and in case you fail to pay within the stipulated period, penalty is levied. A repayment tenure is set within which the amount is to be repaid.

    3. Do you pay interest on buy now pay later?

    Yes, you will have to pay interest on BNPL. The interest charged depends on various factors such as the amount spent, repayment tenure, credit score, etc. Initially, there is a credit free period offered by some companies. If you manage to repay the amount within that period, you will not be required to pay any interest on it.

    4. Where can I use the buy now pay later option?

    You can use the buy now pay later facility both online and offline. If you are purchasing an item online, you can use the BNPL facility to make the payment instantly. Similarly, in case of Point of Sale (POS) transactions, you can use the facility to make the payment by simply QR scanning the code and completing the payment. You will not be required to enter any pin or one-time password (OTP). The only thing you should be mindful is that the merchant should have BNPL as their payment option.

    5. Does BNPL affect credit?

    As long as you repay the amount on time, your credit score will not be impacted. If you clear the amount on time, you credit score is likely to improve. However, if you miss or delay your payments, then you credit score will fall.

    6. What happens if I don't pay BNPL?

    If you do not pay BNPL amount, then you will incur a significant amount of debt, as the company will continue to charge interest on the amount to be repaid. Further delay in the repayment of the amount will also lower your credit score which will make it difficult for you to avail loans or credit card in future. There is a possibility that you may not be allowed to use the BNPL facility in future if you do not pay the amount back in time. Even if you are allowed, a very high interest rate is likely to be charged by the BNPL company.

    7. Are banks offering buy now pay later loan?

    Yes, banks such as Axis Bank, Kotak Mahindra, etc. are offering the BNPL facility to their customers.

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