What is Buy Now, Pay Later (BNPL) Scheme

23 February 2023
4 min read
What is Buy Now, Pay Later (BNPL) Scheme
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While selling goods and services, there was a time in India when no credit transactions were permitted. Those days are long gone, though, as India is quickly becoming a credit-heavy economy, with merchants providing various credit options and consumers enjoying the advantages of using credit.

Buy Now, Pay Later (BNPL), a short-term financing strategy, has gained popularity among customers in recent years and has grown since the pandemic's emergence last year.

To increase sales over the forthcoming holiday season, several e-commerce sites, banks, and other shops have started to offer this program to their clients.

In this blog, the BNPL idea will be thoroughly explained.

Understanding Buy Now Pay Later (BNPL)

A form of short-term financing known as 'Buy Now, Pay Later (BNPL) enables you to make payments in installments before the allotted time for purchases.

Several online retailers and fintech firms in India provide BNPL options to clients as a practical payment option and an excellent replacement for credit cards. BNPL is poised to transform the loan environment since it is approachable, transparent, and offers free EMIs.

What is BNPL Payment?

BNPL or Buy Now Pay Later, is a payment option that allows you to purchase without paying the entire amount at the time of purchase.

Generally, you join up with a firm that provides this service, and the money is made when you make the purchase. But, after the lender pays on your behalf, you must reimburse the money within a specific time frame.

Unlike a personal loan, the BNPL plan usually does not charge interest. You can pay it all at once or in no-cost Equated Monthly Instalments (EMIs). The lender must charge you interest on your amount if you do not repay the amount within the allotted payback period.

Additional postponement can affect your credit rating.

How Does the Procedure of BNPL Work?

Here is how BNPL typically operates-

  • Customers make purchases at participating stores.
  • Choose the ‘Buy Now, Pay Later’ alternative.
  • Carry out the transaction after paying a minimal down payment of the total cost.
  • A sequence of interest-free EMIs will be used to deduct the outstanding amount.
  • EMI payments can be made with a credit card, debit card, check, bank transfer, or straight from a bank account.

Factors to Consider Before Choosing the Buy Now, Pay Later Option

Despite all its advantages and services, BNPL has a few warning signs that clients should be aware of before using the service.

The following are significant points to remember-

  • Available Credit Capacity

This financing option has a comparatively limited credit limit compared to credit cards.

While credit cards can provide up to three times your gross monthly income, BNPL extends credit depending on your average monthly balance in your bank account. Hence, this might not be wise if you want a greater credit limit.

  • About Repayment

Even while BNPL services vary amongst lenders, they always function as loans or credit facilities, and if they are not repaid, the BNPL providers may report the default to credit bureaus.

Of course, itis may negatively affect credit ratings and, as a result, future access to credit.

  • Acceptable Scope 

It would be best always to examine whether your BNPL is restricted to a single merchant or usable at other stores. Can it be utilized at actual merchant locations as well as online?

If they provide such advantages, the BNPL program is fantastic, and you should enroll in it.

  • Impulsive Overspending

The Buy Now, Pay Later technique can easily persuade customers to purchase impulsively. Unfortunately, this may lead to overspending and an earlier-than-anticipated fall into debt.

Benefits of BNPL

Some of the significant advantages of BNPL are-

  • It makes things more affordable.
  • Instant credit availability.
  • A transaction that is secure and safe.
  • You can select a payback period.
  • Cost-free EMI.

Drawbacks of BNPL

Some of the significant issues of BNPL are-

  • Transparency issues are a significant problem. For example, consumers may not be aware that a bank loan has been taken out in their name on occasion.
  • Unjustified consumer promotion.
  • Unjustified debts and loans to civilians.

Conclusion

In conclusion, the frequency and current statistics indicate that BNPL is a potential alternative for Indians new to credit who want to establish a solid credit history. Moreover, because of its simplicity of use and range of payment alternatives, BNPL is likewise becoming increasingly well-liked. 

However, it is still a loan, and the client will ultimately have to pay it back. Therefore, consumers must understand the repercussions of not making a timely payment to avoid interest and a drop in credit scores.

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