Key things to consider when buying it now, pay later

For millions of young consumers who are cash-strapped and don’t have a traditional credit card, “Buy Now, Pay Later” or BNPL has been the latest craze. In India, the short-term finance 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 buyer can make a purchase without having to pay for it instantly out of pocket and instead pay within a stipulated interest-free period. The company providing the installation settles the bill directly with the merchant on behalf of the purchaser, and the purchaser gradually repays it in three or more installments.

Repayment of the amount can be done either in a lump sum or by equivalent monthly installments free of charge (EMI). Failure to repay within the time allowed may lead the BNPL provider to charge interest on the amount. It can also impact the buyer’s overall credit rating. Generally, the interest-free period varies from 15 to 45 days and the credit limit can range from Rs 500 to Rs 30,000.

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How BNPL works

All BNPL service providers share the operating model with terms and conditions. Buyers accessing the BNPL system for the first time must complete the Know Your Customer (KYC) formalities on the service provider’s platform. Buyers must then make a purchase using the Buy Now, Pay Later option, make a small deposit of the full amount, and the remaining amount is deducted in a series of installments. Refunds can be made by bank transfer, checks, credit cards, debit cards or directly from the bank account. BNPL can be used to purchase a wide range of products and services such as gadgets, clothing, food delivery, travel booking, groceries and other expenses.

Advantages of the BNPL

The main advantages of buying now and paying later are increased affordability and instant access to credit. Transactions are also very safe and secure and the overall process is very simple and transparent. No interest is included in EMIs and buyers can also select the repayment term.

BNPL against credit cards

Credit cards are almost similar to BNPL as they offer the option of delaying payment for a stipulated period and do not charge any interest if repayment is made on the due date. However, the two differ in some aspects; the main one being that credit cards can be used with any business that accepts the payment method and BNPL can only be used in transactions with a partner merchant. Additionally, there may be hidden charges on credit cards while BNPL is a transparent and low-cost pricing model. The credit card application includes strict eligibility criteria such as credit rating, income threshold, etc., while the BNPL facility can be used much more easily.

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BNPL vs personal loan

In personal loans, interest is charged on the principal amount, while the BNPL does not charge any interest. While personal loan offers both secured and unsecured loans, BNPL loans are only secured. Also, although use in the BNPL is restricted, there are no restrictions on how the money can be spent on personal loans.

(By Mahesh Shukla, Founder and CEO, PayMe)

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