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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.<\/p>\n\n\n\n
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!<\/p>\n\n\n\n
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<\/a> are a kind of installment loan.<\/p>\n\n\n\n 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<\/a>, or bank account till you complete the transaction.<\/p>\n\n\n\n The entire system of BNPL works in the following manner:<\/p>\n\n\n\n Step one \u2013 Purchasing<\/p>\n\n\n\n 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.<\/p>\n\n\n\n Step two \u2013 Checkout page<\/p>\n\n\n\n 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\u2019s preferred BNPL provider presents this option.<\/p>\n\n\n\n Step three \u2013 Soft credit check by the BNPL provider<\/p>\n\n\n\n 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.<\/p>\n\n\n\n Since this credit check is not reported to credit bureaus, it will not negatively impact the customers\u2019 credit scores.<\/p>\n\n\n\n Step four \u2013 Processing of the transaction<\/p>\n\n\n\n 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.<\/p>\n\n\n\n The fee (which usually ranges between 2% and 8%) is deducted from the amount remitted to the merchant by the BNPL provider.<\/p>\n\n\n\n Step five \u2013 Enjoy your interest-free payment<\/p>\n\n\n\n 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).<\/p>\n\n\n\n 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.<\/p>\n\n\n\n After you\u2019ve understood what buy now pay later is and how it works, it\u2019s vital to learn about its key features.<\/p>\n\n\n\n A hard check can negatively impact your credit report, which can, in turn, lower your credit score.<\/p>\n\n\n\n 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.<\/p>\n\n\n\n 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.<\/p>\n\n\n\n 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).<\/p>\n\n\n\n The buy now pay later system is a quick process with fast approval. Customers can get approved within minutes through a fully digital process.<\/p>\n\n\n\n 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.<\/p>\n\n\n\n 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\u2019t actually want or need, and sometimes even cannot afford to pay for.<\/p>\n\n\n\n Make sure you don\u2019t fall into this trap by being diligent and judicious with your financial choices.<\/p>\n\n\n\n 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.<\/p>\n\n\n\n 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.<\/p>\n\n\n\n The key differences between buy now pay later and EMI<\/a> are highlighted in the table below:<\/p>\n\n\n\n <\/p>\n\n\n\nHow does buy now pay later work?<\/strong><\/h2>\n\n\n\n
Key features of BNPL schemes in India<\/strong><\/h2>\n\n\n\n
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Benefits of buy now pay later (BNPL) in India<\/strong><\/h2>\n\n\n\n
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Drawbacks & risks of buy now pay later<\/strong><\/h2>\n\n\n\n
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Differences between buy now pay later and EMI<\/strong><\/h2>\n\n\n\n