Things to consider before availing loans under BNPL scheme

Many of us eagerly wait for the festive season offers to make big purchases. This is also the time when companies come out with good deals and discounts to bring cheers to their customers. While a lot many people have credit cards to make the most of these offers, for those who do not have access to formal credit due to lack of credit history the option lies in Buy Now Pay Later or BNPL facility.  

BNPL has recently become a popular means of payment, as it allows its customers to split the total cost of purchase into monthly instalments using the facility. Here the payment is made by the BNPL player to the merchant, which is later paid back by the customer in the form of zero cost EMIs.  

“BNPL are kind of instant, no-cost financing that has gained popularity especially during the Covid-19 pandemic. These short-term loans are also popular with consumers who normally do not qualify for credit or financing but still wish to enjoy the benefits,” said Ashish Misra, COO, Retail Banking at Fincare SBF.  

Simpl, LazyPay, Amazon’s Pay later, Mobikwik Zip, Paytm Postpaid, ZestMoney, and Early Salary are all examples of fintech players promoting this new line of digital credit to retail customers.  

Types of BNPL  

Primarily,there are two types of digital players in the market--payment finance and transaction finance. For example, in case of BNPL players like LazyPay and Simpl you don’t have to go through the lengthy process of adding credit cards or money into wallet or wait for an OTP. You can just accumulate all your bills and pay only one bill after a certain number of days, which gets forwarded to the BNPL account. “Payment finance players usually have integration with smaller merchants like Swiggy and BigBasket where average ticket size is much smaller. They kind of give advance money to their customers without needing KYC documents,” said Vimal Saboo, Chief Business Officer, EarlySalary. 

Then there are players like CapitalFloat, ZestMoney, and EarlySalary that allow users to shop online and pay later through EMIs. “We offer transaction finance for big ticket purchases from merchants, including buying an insurance policy, where repayment can be done in EMIs. The average ticket is much higher, up to Rs 1- Rs3 lakh, as we are backed by NBFC. Moreover, in tune with RBI regulations we need customers to upload their KYC details,” said Saboo. 

Things to know before availing BNPL facility 

Given it’s the start of the festive season many of us get tempted to make big purchases. But, before availing this easy cash, here are a few things you should know about the new credit line: 

Interest Rate 

Most of the BNPL schemes are available at interest-free credit because fintech companies tend to pass on the discount availed from merchants to customers in the form of zero cost EMIs. The interest-free period may vary from 15-30 days, beyond which the customer has the choice to pay lump sum or in instalments.  

However, few transactions where no incentives could be offered by merchants such as paying insurance premium, the BNPL player may charge of 15-20 per cent per annum of the amount. Similarly, in case of payment finance players, all online expenses are consolidated in one account where the balance needs to be cleared every 15-30 days.  

What happens if you default? 

There are two types of charges levied on you if you miss the payment. First is the late payment fee which can be anywhere between Rs 500-Rs 1000 and then there is the penal interest rate of 2-2.5 per cent per month. “Depending on the type of plan you choose, there are going to be higher fees and interest charges, if you end up not paying the instalments on schedule,” said Misra. 

Can the merchant blacklist the defaulting customer? “The merchant does not have any say on the transaction funding. Generally, lenders do not have any recourse on merchants. So, merchants will not go back to the consumer,” said Saboo. 

Refund 

You may experience difficulty in getting a refund for something you've purchased, regardless of whether it's defective or otherwise unsatisfactory. It is, therefore, important to be sure of what you want to buy as merchants may have some terms and conditions attached when it comes to cancellation or returning the product. “Sometimes, the finer details of such lending programs are not clearly understood or transparent and one may be able to access help readily if something goes wrong,” said Misra.  

Last but not least given access to easy money, there is a risk of getting carried away and binging. Hence, it is always advisable not to overstretch and purchase more than you can afford.