A long weekend is arriving just next month and you are eager to plan a vacation. Your account balance doesn't allow you to shell out money on ticket fares and hotel bills right now, but you do know you'll have enough funds by the start of the next month. Approaching a bank to get approval for the credit card is time taking. The request may get rejected also. You now consider a fintech lender, but higher interest rates dissuade you. Borrowing money from a friend or a family is not an option for you, so you choose to cancel the travel plan altogether. But you don't have to. Thanks to cardless 'Buy Now Pay Later' (BNPL) options, you can instantly get interest free credit if you pay back the full amount by the due date. You may also choose no-cost EMIs or affordable instalment options.
Take, for instance, ePayLater. If you sign up on the ePayLater platform, you get a credit limit of up to Rs 20,000. With this credit limit, you can easily plan your travel via IRCTC, MakeMyTrip, Yatra or other partnered merchants. No interest or commission is charged if you pay back the money within 14 days. Beyond the due date, penal interest is levied at the rate of 3 per cent per month on a pro-rata basis. "We understand that it is human to overlook reminders. Hence, we give our customers the leeway of a few more days beyond the due date to make the payment. However, the customer is charged penal interest," says Uday Somayajula, Co-Founder, ePayLater.
LazyPay, Simpl and Zest Money are few other 'Buy Now Pay Later' options. Let's understand how BNPL works:
What is 'Buy Now Pay Later'?
BNPL option works like a credit card minus a physical card. BNPL firms partner with merchants that give you BNPL payment option at the point of sale. So, you can also call them 'check-out lending platforms'.
What are the benefits?
Not only do these platforms provide instant credit, but also ease in making payments. You don't have to enter your 16-digit card number or log in to your bank account or refill your e-wallet. You can make the transaction simply by entering the one-time-password (OTP). Offline options are also available. These platforms facilitate QR-code supported 'Scan & Pay' option. Customers can also transact on merchants that accept UPI.
Who are eligible for it?
Not all who don't get the approval for a bank credit card are non-creditworthy. This is the segment BNPL platforms target. They use sophisticated algorithms to assess the creditworthiness of a prospective borrower. For instance, ePayLater leverages non-traditional data such as demographics, customer transaction behaviour with the merchants, digital footprint, social media information and device information as inputs to do a real-time credit assessment of the customers. Once signed up, an individual can avail a credit limit of up to Rs 20,000. The limit varies across platforms and can get upgraded as per your repayment behaviour.
Which BNPL option to choose?
Before you choose a BNPL option, you must check the list of merchants where the credit limit can be used. For example, Lazypay is accepted across the 250-plus website and apps, according to its official site. ePayLater has partnered with IRCTC, PVR, MakeMyTrip, Yatra, EaseMyTrip, Tata Croma, Travelyaari, among many others. ePayLater UPI can be used on Amazon, Flipkart, Myntra, Swiggy and Uber, to name a few.
While ePayLater gives 14-day interest-free period to settle the payment from the date of purchase, with Lazypay you can also go for a no-cost EMIs or affordable instalment plans apart from one-time settlement option in every 15 days.
Should you go for it?
Any debt is bad debt. You must avoid spending on credit to the best you can. However, you may consider BNPL to meet the short-term credit crunch as long as you are sure you will pay back in time, for trouble starts when you pay late. "There are usually significant penalties for any missed payments. The late payment fees and monthly interest on outstanding can be anywhere between 1.5 per cent to as high as 3 per cent, which can easily get you in a debt trap," says Prashant Joshi, Co-Founder and Partner, Financial Research and Advisory Services, Fintrust Advisors LLP.
Even as you pay back the full amount along with the late payment charges, your credit history will have been affected. "The ease of use makes borrowers ignore the terms and conditions which are attached to card less 'buy now pay later' payment options. These platforms mostly don't reveal that a bad payment history can impact their credit scores where such payment delays or failures are reported to credit bureaus such as CIBIL," says Vineet Patawari , Co-Founder of stock analytics platform StockEdge and financial market learning platform Elearnmarkets.com.
"For better financial prudence avoid debt trap for small payments that you can easily make upfront such as the ones for buying food on Zomato or Swiggy or for riding cabs," he adds.
In case you do go for the BNPL option, you should read the fine print carefully to take stock of all risks and how late payments may impact you financially.
"The borrower should be aware of the specific deal in place, the cost of credit and the payment terms. They also need to factor in the possibility that their financial circumstances could change in the future. So, they should have complete clarity on the implications if they do not clear their balance within the promotional period. It is important to check the total cost of the BNPL scheme over its lifetime and any potential negative consequences," says Joshi of Fintrust Advisors.
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