In this era of relentless inflation, the need for extra credit has been greater than ever before. Though credit cards have already been in the market for years, Indian consumers have always been sceptical about the tricky terms & conditions linked with them. More than a way of boosting purchasing power, credit cards are often considered a debt trap. Therefore, to make extra credit accessible and easy for all, many financial institutions and fintech players have launched their Buy Now Pay Later (BNPL) products. In the last couple of years, the BNPL customer base has expanded dramatically. During the pandemic, when a lot of people were looking for extra credit, BNPL came to the rescue. And now, as the BNPL trend continues to grow strong, more and more fintech players are joining the market.
What is BNPL?
In simple words, Buy Now Pay Later works like the traditional Indian Khaata system wherein you purchase an item or shop whenever you want and clear the bill once a month, instead of paying every time. BNPL is more like a modern digital Khaata with online shopping accessibility and some clear terms of use that a user must abide by. If still unclear, you may consider BNPL as a type of short-term loan that enables you to shop whatever you want/need on the current date and pay for it later as a lump sum or in instalments. Now, you must be wondering that this is how credit cards also work. How is BNPL different? Right? Just read along to know it all.
How is BNPL different from Credit Cards?
Although credit cards and BNPL look similar on the face, some key factors are drawing borrowers away from credit cards and towards Buy Now Pay Later.
1. Debt Risk:
Credit cards are like big-ticket loans that pose a greater risk of default in case you borrow too much. Whereas, BNPL works just like a small-ticket loan with less risk of accumulating too much debt and is, therefore, easier to repay.
2. Fees and Hidden Charges:
Unlike credit cards, there is no joining or processing fee for BNPL. Also, some hidden charges and the tricky terms & conditions linked with credit cards make them less appealing than BNPL.
3. Easy Access:
In a credit-scarce country like India, the requirement of a long credit history to get a credit card is one of the biggest factors restricting its reach to a wide range of borrowers. On the other hand, it is easier to get BNPL credit as it has no hard requirement of long credit history. Therefore, BNPL is a boon for young borrowers.
4. Convenience of Use:
Paying via credit card is too much of a hassle and consumes a lot of time. You have to remember your PIN/CVV and wait for an OTP for longer than usual, sometimes. On the other hand, you can pay anywhere using BNPL with just one tap.
5. Instant Approval:
Generally, credit cards have a long application and approval process. But signing up for a BNPL service just takes a few minutes and you can get approved instantly.
How BNPL works?
Firstly, to sign up for BNPL, you are required to complete KYC formalities and provide a few details to the lender. In the next step, once you’ve been approved and given a credit limit, you can then use this credit to pay bills, shop online/offline, order groceries, and more. On the checkout page, you just need to select the BNPL option to complete the transaction. A consolidated bill containing details of all your spends is generated once a month that you need to pay by the set due date.
Summing up all of the above facts, choosing BNPL over credit is a no brainer if you’re looking for extra credit to boost your monthly budget. However, if big-ticket borrowing is on your mind, then a credit card is the way to go. For millennials and Gen Z, BNPL is the ideal option to start with and build their credit score.
