Instant onboarding, no paperwork and less dependence on credit scores have made Buy Now Pay Later (BNPL) scheme a popular payment option among millennials and self-employed people who do not have access to formal credit. What makes it further attractive is the interest-free credit period, which is upto 15-45 days, on the lines of credit cards. With new players like Uni and Slice, which work on top of a Visa card, this interest-free period can be extended up to 90 days by dividing your monthly purchase into three instalments.
Though the longest interest-free tenure has made BNPL cards attractive, it is important to understand their cost structure, especially what happens if one defaults on the payment. Considering credit cards are known for their hidden charges such as interest on interest or interest on fees, here is a comparison of how both levy charges in case of a default.
“The core idea behind the Uni Pay 1/3rd card is that it helps manage short term money needs while giving the flexibility to earn rewards per choice. It is the longest interest-free credit product in the market which works on top of a Visa card. It questions the traditional ethos around credit card like products that penalise a user heavily for short term fund requirements. Pay 1/3rd card very importantly gives you the choice to pay 1/3rd or get 1 per cent rewards depending on your needs, and this is customisable down to every transaction. Not just that, the Pay 1/3rd card has super transparent and flat fees for paying the minimum amount and missing payment beyond the due date,” says Nitin Gupta, Founder and CEO, Uni cards.
What happens when you miss the payment?
Gupta explains with the help of two scenarios. Scenario 1 is when a user does a Rs 30,000 transaction on Uni's Pay 1/3rd card. Now the bill for the end of the month is only Rs 10,000 for the user. If the user does not pay Rs 10K on time and gets late, then Uni levies two fees on the customer (a) Late fee as per the slab of 10K (and not 30K) (b) Carry forward fee which gives a user an extra month to pay back this bill. Again, the carry forward fee is applied only on the Rs 10,000 amount (and not on Rs 30,000). This carry forward fee is a fixed fee which is 4 per cent inclusive of GST.
Now let’s consider scenario 2 wherein a user does a Rs 30,000 transaction (not opting for the 1/3 scheme) on a credit card. Now this Rs 30K will be due end of the month for the customer to pay back. If the customer gets delayed in paying this amount, then the user has to pay two charges (a) late fee as per the slab of Rs 30,000 (b) penal interest charges (42 per cent APR + GST) applicable from the date of transaction on the entire Rs 30,000. If the user pays on time but does not pay the entire Rs 30,000, then whatever is paid less, the user pays penal interest charges on that amount applicable from the date of transaction.
What happens if the minimum due amount is paid?
There is no late fee applicable if the minimum repayment amount is paid on time. In which case, a flat carry forward fee is charged on the pending balance (o/s amount - minimum repayment) and there is no daily interest charged from the date of the transaction. Also, new transactions do not attract any charges. However, the credit card company charges you interest on the whole outstanding amount from the date of the transaction and even for the new transactions interest is charged from the date of transaction.
What happens in the case of part payment?
For the BNPL scheme only carry forward fee or interest is applicable on the remaining amount. New spends attract zero charges. On the other hand, part payment in the case of credit cards only helps in reducing the burden of paying the full amount next time. Interest is still calculated on the entire amount even after making a partial payment.
One of the biggest advantages of the BNPL or Pay ⅓ card is that the charges are applied on the remaining amount whereas in a credit card it is applied to the entire amount. Having said that there are multiple charges in the form of a late fee and a carry forward fee that you need to pay in the BNPL facility too. The advice is not to go overboard as it is not free money. Any default on payment comes with high interest and a late payment fee.