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Tata Capital > Blog > Wealth Services > What is Buy Now Pay Later (BNPL)? Meaning & how it works in India

Wealth Services

What is Buy Now Pay Later (BNPL)? Meaning & how it works in India

What is Buy Now Pay Later (BNPL)? Meaning & how it works in India

Gone are the days when there were just a handful of options to pay after an online purchase. With more types of credit transaction systems gaining traction in India, it is unsurprising that the buy now, pay later (BNPL) system has followed suit. According to an India Times report, India now has approximately 22-25 million BNPL customers, with a projected increase to 90-100 million by 2026.

However, there are still many who are new to this concept and are skeptical about it. If you are one of them, read this article until the end to know what BNPL is and how it works!

What is Buy Now Pay Later (BNPL)? – Full form & definition

Buy Now Pay Later, or BNPL, is a form of payment that allows you to purchase without paying the entire cost at the time of purchase. Buy Now Pay Later (BNPL) loans are a kind of installment loan.

It splits your purchase into several equal installments, the first of which is due at checkout. The remaining payments are charged to your debit, credit card, or bank account till you complete the transaction.

How does buy now pay later work?

The entire system of BNPL works in the following manner:

Step one – Purchasing

As a customer, you begin the BNPL process in the same way you would for any other online purchase. You browse your favorite online stores, choose your items, add them to your cart, and prepare to pay.

Step two – Checkout page

At the checkout page, the customer is presented with a myriad of payment options like cash on delivery, credit cards, debit cards, etc. Among these options would be the BNPL option. The seller’s preferred BNPL provider presents this option.

Step three – Soft credit check by the BNPL provider

When a consumer purchases things through BNPL, they provide certain personal information, like their address, etc., to the BNPL provider. Then, the provider instantly performs a soft credit check on the customer. On the basis of their credit history, the provider ensures that they will repay the outstanding amount.

Since this credit check is not reported to credit bureaus, it will not negatively impact the customers’ credit scores.

Step four – Processing of the transaction

After the approval, the seller is charged a fee by the BNPL provider. The BNPL provider also takes a share of the retail transaction. This is billed to the seller directly.

The fee (which usually ranges between 2% and 8%) is deducted from the amount remitted to the merchant by the BNPL provider.

Step five – Enjoy your interest-free payment

The total amount is paid off gradually by the customer. Most BNPL vendors provide interest-free payments if the consumer pays their entire sum in a short period (usually 30 days).

Customers who wish for extra time to pay off their balance can also benefit from various payment plans. However, these plans have varying interest rates. Hence, as a customer, you should pay the due amount as quickly as possible. This will decrease the total interest that you will pay.

Key features of BNPL schemes in India

After you’ve understood what buy now pay later is and how it works, it’s vital to learn about its key features.

  • BNPL allows customers to buy products now and pay for them later in easy installments.
  • It usually offers short-term, interest-free credit if payments are made on time.
  • The approval process is quick and digital, with minimal documentation required.
  • BNPL schemes are widely available on e-commerce platforms, apps, and offline stores.
  • Users are given a pre-approved credit limit based on their income and credit profile.
  • The BNPL repayment period is short and ranges from 15 days to a few months.
  • Many BNPL schemes do not require a credit card, making it easier for young users to benefit from them.
  • Timely repayments can help build a credit history, while delays may affect credit scores.
  • BNPL is ideal for small to medium-value purchases.

Benefits of buy now pay later (BNPL) in India

  1. No credit checks

A hard check can negatively impact your credit report, which can, in turn, lower your credit score.

With BNPL, this is not a concern. As part of the approval process, certain BNPL apps make a soft draw on your credit (which does not affect your credit score). Additionally, BNPL soft checks are often easier to approve than credit cards.

  1. Flexible repayment options

Flexible payment options are the need of the hour, and BNPL services do not disappoint us! Most BNPL services provide clients with several payment options at the moment of purchase.

As a consumer, you can use the BNPL service to either pay the entire purchase amount or split the payment between buy now, pay later EMI and another payment source (such as a debit card).

  1. Quick online approval process

The buy now pay later system is a quick process with fast approval. Customers can get approved within minutes through a fully digital process.

It requires minimal documentation, such as basic personal and income details. As a result, BNPL is an easy-to-access payment system, especially for first-time users and young consumers.

Drawbacks & risks of buy now pay later

  1. Risk of overspending

The most serious concern with BNPL platforms is that they may foster impulse spending. For example, with buy now pay later financing, you can buy anything before putting a dime down. That can seem enticing, but you have to wonder how countless individuals buy goods they later find they don’t actually want or need, and sometimes even cannot afford to pay for.

Make sure you don’t fall into this trap by being diligent and judicious with your financial choices.

  1. Late payment charges

If you fail to make a payment or do not have enough cash in your linked bank account, you will most certainly have to pay late fees. Many are fair flat-rate costs comparable to those levied by credit cards, but these fees can accumulate over time. The best way to avoid this spiraling situation is by paying on time and preventing excessive charges.

  1. Possible impact on credit score

In certain situations, BNPL can impact your credit score. For instance, if you miss or delay payments, the BNPL provider can report your payment behavior to the credit bureaus. This can lower the credit score and affect future loan or credit card approvals. Even small missed payments can cause long-term credit problems.

Differences between buy now pay later and EMI

The key differences between buy now pay later and EMI are highlighted in the table below:

AspectBuy Now Pay Later (BNPL)Equated Monthly Installments (EMI)
MeaningAllows you to buy now and pay later, usually in short-term installments.Allows you to repay the purchase amount in fixed monthly installments over time.
Approval processVery fast and digital, often approved within minutes.Takes longer as it usually involves bank or lender checks.
Interest costMostly interest-free if paid on time within the due period.Usually involves interest, depending on the bank, card, or loan terms.
TenureShort-term, usually 15 days to 3 months.Medium to long-term, ranging from 3 months to several years.
Credit requirementOften does not require a credit card.Usually requires a credit card or loan eligibility.
Purchase valueBest for small to medium-value purchases.Suitable for high-value purchases like a home, car, or electronics.
Impact on credit scoreSoft checks for approval do not affect credit score, but delays in payments can.Credit checks affect credit score, but regular EMI payments help build a strong credit history.

Popular BNPL providers in India

Some of the popular providers offering the BNPL facility in India include:

  • LazyPay: It offers short-term interest-free credit and easy EMI choices for online and everyday spending.
  • Simpl: The platform allows you to make purchases now and pay later with a simple, bi-monthly bill cycle.
  • ZestMoney: It offers flexible BNPL and zero-interest EMI plans. You can use it to purchase gadgets, travel, etc.
  • FlexMoney: It enables quick installments across many online platforms.
  • Amazon Pay Later: The platform lets Amazon users split payments on purchases at checkout.
  • Paytm Postpaid: It offers a seamless experience through the Paytm app. You can make small-ticket purchases, buy recharges, or pay bills.

Eligibility and how to apply for BNPL

The eligibility criteria for BNPL are as follows:

  • You must be a resident of India with a valid mobile number.
  • Most BNPL providers require the user to be at least 18 years old.
  • A basic credit check may be performed, but a credit card is generally not required.
  • Some providers may ask for PAN and income details.

The step-by-step process to apply for the BNPL scheme is as follows:

  1. Choose a BNPL provider or select the BNPL option at checkout on an app or website.
  2. Complete online KYC using PAN and basic personal details.
  3. Get instant approval and a credit limit.
  4. Use BNPL for purchases and repay on or before the due date.

Tips for using BNPL responsibly

You can enjoy the BNPL scheme to its fullest by following the tips mentioned below:

  • Use BNPL only for necessary purchases and avoid impulse spending.
  • Always check the repayment date before using the option.
  • Pay the full amount on time to avoid late fees and penalties.
  • Do not use multiple buy now pay later apps at the same time.
  • Stay within your spending and repayment capacity.
  • Read all terms and conditions carefully before accepting the offer.
  • Keep track of all BNPL bills to avoid missing payments.
  • Do not miss payments, as they can affect your credit score.
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FAQs

What is BNPL’s full form?

BNPL stands for Buy Now Pay Later. The payment option allows customers to purchase goods or services immediately and pay the amount later in installments or on a fixed due date.

How is BNPL different from credit card EMI?

BNPL has a short repayment period. There are no interest charges and no credit card requirement. Credit card EMI involves monthly installments and a longer tenure. You may have to pay interest charges as well.

Are there any charges or interest on BNPL in India?

Most BNPL services are interest-free if payments are made within 15 to 30 days, depending on the provider’s terms. However, late payments may attract penalties, fees, or interest charges.

Can BNPL affect my credit score?

Yes, BNPL can affect your credit score. Timely repayments can help improve your credit history, while missed or delayed payments may impact it negatively.

What happens if I miss a BNPL payment?

The provider may charge late fees if you don’t make a BNPL payment. It may also reduce your credit limit. Moreover, the provider may report the delay to credit bureaus, impacting your credit score negatively.

Are there any eligibility criteria for using BNPL schemes?

Yes. Only Indian residents who are at least 18 years old can use BNPL schemes. They must also have a valid mobile number and complete basic KYC with PAN details.

Which retailers accept BNPL in India?

Many online and offline retailers accept BNPL in India. This includes e-commerce platforms, electronics stores, fashion brands, food delivery apps, and travel websites.

Is Buy Now Pay Later a safe option for online shopping?

Yes, BNPL is generally safe when used on trusted platforms and repaid on time. You must read the terms carefully and avoid overspending to stay financially safe.

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