A look at BNPLs and how they stack up against other forms of unsecured credit


Ahead of the festival season, a comparison of buy-it-now and post-payment programs with credit cards and loans

Adhil Shetty


Posted 20.09.21, 01:04 AM

There’s a new player in town, and his name is BNPL. Buy Now Pay Later loans are not a recent invention. However, given the economic hardship caused by the pandemic, they are becoming more and more popular.

While people have struggled to stabilize their incomes and have had to dip into their savings to support themselves, it has also become more difficult for some to use other forms of credit. For example, without a stable income and repayment of other loans, it is difficult to qualify for a new personal loan.

Therefore, there is a need for a short term credit solution which can be used without hassle and repaid at no cost. Think of it like maintaining a tab with your local grocer: at the end of a month, you make a lump sum payment to settle your dues, and there is no interest or processing fee. Actually, you can get a little discount if you pay on time. As the holiday season approaches, you’ll hear about your borrowing options. So let’s take a look at BNPLs and how they stack up against other forms of unsecured credit.

What is BNPL?

BNPLs have been around for a few years, and you would have seen them as a “payment” option on taxi aggregators, online grocery stores, or food delivery services. In a BNPL loan, you get a micro credit – Rs 5,000 to Rs 25,000 in most cases – and you have to repay the contributions within 14 to 90 days. The loan is interest free. There are also no processing fees or renewal fees, just a penalty for late payments. You can get it quickly from your preferred BNPL provider. BNPLs are now visible on a number of online services. While the number of use cases they currently have is low, the number of merchants integrated by lenders is growing rapidly.

Why is it gaining popularity

The global BNPL market was valued at $ 7.3 billion in 2019 and is expected to reach $ 33.6 billion by 2027, according to market research. The BNPL survey for the fourth quarter of 2020 indicates that in India, the gross value of goods will reach $ 52.8 billion by 2027. The rapid increase in BNPL in India coincides with the loss of revenue from the pandemic as well. that the public going online for every need, whether it’s paying bills or shopping for groceries. Many fintech lenders are now offering BNPLs and a few large private banks have also entered the fray.

Take advantage of a BNPL

Unlike bank loans where credit score and income verifications are required in loan underwriting processes, BNPLs are less stringent. BNPLs can be used online with minimal paperwork or even without having to meet with the lender. This is a good option for new credit borrowers, especially those who have not yet accepted a credit card. Once you have signed up for a BNPL, you need to link the account to the merchant you wish to purchase with and use the BNPL as a payment option when finalizing your purchase.

Credit card vs BNPL

The similarities between the two are ease of access and use, revolving credit, and an interest-free window. But there are a lot of differences. Credit cards may allow much higher spending limits compared to BNPL, which can be as high as Rs 1 lakh in a few cases.

In BNPLs, late payments result in penalties but not interest, except for BNPL EMIs where interest may apply. The cards charge both penalties and interest. Cards are universally accepted, online or offline, in India or globally.

BNPLs can only be used with traders linked to the lender on specific platforms. The cards also come with plenty of rewards, cash back rewards, and perks that can improve the borrower’s lifestyle, but BNPLs usually don’t have any rewards.

The cards allow cash withdrawals at an additional interest charge; BNPLs do not.

Personal loans vs BNPL

Personal loans can reach Rs 40 lakh in some cases and can be repaid with interest for terms of up to five years. BNPLs are micro-credits with much shorter durations and without interest. The loans are deposited in your bank from where you can spend the money as per your requirement, even in cash. BNPLs stay with your lender who settles invoices on your behalf with partner merchants. Personal loans are one-time loans while BNPLs, like credit cards, can be used over and over from your approved loan balance as long as you continue to repay your contributions.

BNPLs, credit cards, and personal loans are various forms of unsecured credit, each with their own advantages. Borrowers with good credit profiles will receive many offers for these during the holiday season. But any form of credit should be used with financial discipline. Users should not over-borrow and should minimize their use to finance their lifestyle and consumption.

BNPL registrations do not normally require a serious credit check, which can lower your credit score slightly. However, late payments are sure to hurt your score. Therefore, borrowers should make sure to read the terms and conditions carefully, borrow thoughtfully, and always repay their dues on time.

The author is CEO, BankBazaar.com

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