Buy Now, Pay Later (BNPL): Meaning and How Does It Works

Earlier, there were only a handful of options to make a payment after purchasing something online. As more types of credit transactions take place in India, the Buy Now Pay Later option follows suit for most. According to a report by the India Times, 14% of e-commerce transactions are through BNPL. Currently, there are 22-25 million BNPL customers in India, and the number is set to reach 90-100 million by 2026. However, if you are new to the concept, read on to learn more about BNPL's meaning and working.

What Is Buy Now, Pay Later?

BNPL's full form is Buy Now Pay Later, which allows buyers to make purchases without paying the costs upfront. It is a kind of instalment loan that splits the cost into equated monthly instalments, the first of which is due at the time of checkout. You must pay the remaining instalments through your debit card, credit card, or bank account till the transaction is complete.

How Buy Now, Pay Later Works?

The online finance system of Buy Now Pay Later India works in the following manner:

• Browse through your favourite online store, choose the desired item, add it to your cart, and proceed to pay.
• At the checkout page, choose the BNPL option.
• Provide a few necessary details and let the provider perform a soft credit check.
• Make the payment after approval.
• Enjoy easy payments gradually in instalments.

Eligibility Criteria for Buy Now Pay Later

Now that you know what is BNPL, see the eligibility conditions to qualify for one:

• Indian citizenship 
• Residence in a major Indian city
• Minimum and maximum age requirements according to the provider's policy
• Income regularity
• Bank account with KYC verification

What Is the Interest Rate on a BNPL Loan?

While many providers offer BNPL loans without interest, some charge a nominal fee based on your credit score, repayment history, income regularity, and other factors. That is why they conduct a credit check before approving your BNPL request.

Pros and Cons of Buy Now, Pay Later

Like any other payment system, BNPL also has pros and cons. These include the following:

Pros	Cons
No branch visits or documentation requirements	Leads to overdrafts
Adjustable payment options	Encourages impulsive shopping
Access to credit without a credit card	Hefty late payment charges
Increased affordability for big-ticket expenses	Possible damage to the credit rating
Safe and secure transactions	Addictive nature
Simple and transparent process

Also Read: Personal Loan, Credit Card or BNPL- Which Is the Better Option to Go For?

Difference Between Buy Now Pay Later and Personal Loan

While many may confuse a Buy Now Pay Later scheme with a Personal Loan, these are the differences between the two: 

Parameter	Personal Loan	BNPL
Loan Amount	Higher loan sanction	Smaller loan size
Collateral Requirement	Both secured and unsecured Personal Loan are available	BNPL loans are secured against the purchased item
Applicable Interest	Interest depends on the principal amount and credit score	The interest varies according to the provider's policy
End-Use Restrictions	No end-use restrictions	Restricted usage
Repayment Tenure	Longer repayment tenure	Shorter repayment tenure

The Future of Buy Now, Pay Later

The future of Buy Now Pay Later is promising as it is attracting an increasing number of customers to make purchases instantly. Most service providers offering this facility allow easy repayment in EMIs, making them a preferred payment option for buyers. However, it is still a type of loan that you must repay within the pre-determined tenure. Owing to its increasing popularity, the future of BNPL looks good, provided that customers use this facility properly and clear their dues on time. 

The market is set to grow significantly in the next few years, driven by increased demand and easy accessibility. Its Gross Merchandise Value is expected to grow several times in the coming years, making it a popular choice among customers.

Conclusion

Now that you know what is Buy Now Pay Later, you can make your desired purchases immediately and pay them off over time. When considering this scheme, carefully understand the terms and conditions and prioritise timely repayments. If you are looking for an alternative, download an instant personal loan app on your smartphone and get instant access to funds when you need them the most.

Also Read: Is Travel Now, Pay Later A Smart Way To Finance Trip

Frequently Asked Questions

1. How do I qualify for Buy Now Pay Later services?

Fulfil the provider’s eligibility conditions to qualify for their BNPL services. 

2. Are there any fees associated with Buy Now Pay Later?

Interest rates, BNPL fees, service charges, etc., are a few fees associated with a BNPL scheme.

3. Can I use Buy Now Pay Later for any type of purchase?

You can use a BNPL scheme to make almost any purchase at checkout.

4. Is my credit score affected when using Buy Now Pay Later?

Your credit score does not get affected by BNPL. However, missing the repayment may affect it negatively.

5. Are there alternatives to Buy Now Pay Later?

Credit cards, Personal Loans, etc., are a few alternatives to Buy Now, Pay Later.