Buy Now, Pay Later, or BNPL

Buy Now Pay Later (BNPL) services seem to be one of the most popular topics in recent times. As e-commerce giants, retailers, and even financial services like banks and brokerage houses are offering such services, there has been a huge surge in the use of BNPL applications and services, in recent times. However, if you are new to BNPL offers or wondering how this works, then here is a brief guide about BNPL services.

What are BNPL services?

BNPL services let you buy things today on credit and you can make the payment within a stipulated period. This means you do not have to pay anything today for the purchase. You will have to pay the amount later either in installments or at one go after a specific period.

Buy Now Pay Later services are something that has been there for ages, but during the pandemic, due to the cash crunch and financial crisis, these services boomed drastically. So, BNPL is a short-term credit facility that one can opt for. It can be used for multiple purposes, from buying food online, to even trading stocks.

If you have noticed there are Amazon Pay, Ola Post Paid, Lazy Pay, and similar other options that you get for paying on e-commerce websites, online food ordering, and similar applications that are nothing but BNPL services.

With BNPL services, you do not have to pay any upfront fees or down payment like other credit facilities like a loan, but you can avail credit. However, the time for which you can take the credit varied from 15 days to 45 days. Within this period, you have to pay the bill to the BNPL service provider. However, if you are availing higher amount of credit, the stipulated time can be up to 8 to 12 months as well.

This is more like a credit card, however, eligibility criteria for getting a credit card are many and rigid as well, while availing of BNPL services is quite easy.

Eligibility criteria for availing BNPL services

As mentioned in the above section, you can avail of these services easily as there are not so rigid criteria which you have to fulfill to avail of these services. Usually, the BNPL providers ask for –

• PAN card
• AADHAAR Card
• Bank details
• Income details

They verify these documents for evaluating your identity, and income, and also your credit score is evaluated. If you meet the criteria you can avail of their services. However, if you are using BNPL services for the first time, and you haven’t used any other credit facility in the past, which means, you do not have a credit history, you can easily get the minimum credit line from most of the providers. Unlike credit cards, there are no minimum income barriers or stringent rules for availing BNPL services.

How much amount you can avail using BNPL services?

The amount of credit varies from one provider to another, and also depends on your credit score and credit history. You can avail of Rs. 500 which is the basic or minimum that many providers offer for first-time BNPL users while the maximum sum that can be availed goes up to Rs. 30,000 and above and there are a few BNPL providers who even offer credit up to Rs. 1 lakh.  

Interest charges on the buy now pay later services:

Yes, BNPL service providers levy interest on the credit availed, if the borrower doesn’t repay the amount within the stipulated period. This means, suppose the stipulated period is of 45 days, so, from the 46^th day, interest will be levied on the amount you have availed as credit. One thing to keep in mind here, most of the BNPL providers levy heavy interest if you delay the repayment.

The bills can shoot up drastically and even get double within a few months. So, it is crucial to repay the amount within the due time. Furthermore, it affects the credit score and credit history of the user as well.

How is it impacting daily lives?

BNPL services have entered our daily lives. If you use OLA or Zomato, or any other online shopping apps, or e-commerce sites, you must have seen these offers when you check out the payment options. It has eased the lives of many during the pandemic when many lost their jobs and went through a financial crunch.

The use of these applications is more popular amongst millennials and Gen Z. In a recent study, it has been observed that only 3.33% of bank account holders have credit cards and there are approximately more than 900 million bank account holders in India. So, there is a huge gap that BNPL providers can fill up with their services. It has been estimated that the BNPL market can become a $33.6 billion industry by 2027.

BNPL services in Stock trading

You can also avail of BNPL services for stock trading. Wondering how? So, you must have heard of margin trading funding, haven’t you? Margin trading is nothing but BNPL services where you keep a small amount in your trading account against which you can trade securities worth multiple times the amount.

Suppose you have Rs. 10,000 in your trading account, and you come across a great stock which is having immense potential to grow in the near future and is presently trading at a cheap price suppose at Rs. 150 per share. You want to purchase at least 200 shares, for which you need Rs. 30,000. However, you have only Rs. 10,000 in your account. Here comes the BNPL services or Margin trading facility.

Suppose, the brokerage house offer exposure up to 4 times. So, with Rs. 10,000 in the trading account, you can purchase stocks worth Rs. 40,000. Thus, you can easily buy 200 shares of this company and you do not have to miss out on opportunities due to lack of funds.

The interest charged on margin trading facility is also comparatively lower than other BNPL services. You also get a wider window for funding your account. One of the best things about BNPL offers in stock trading is that you can use the stocks you have in your Demat account as the margin as well. So, the Rs. 10,000 mentioned in the above example, need not be in cash form. It can stock worth Rs. 10,000 in your Demat account which you can use as a margin. Isn’t that a great opportunity for retail traders?

Is it safe to use BNPL services?

Until and unless, you have any intention to not pay back the credit you availed from the BNPL service providers, you are safe and your credit history is safe as well. The moment you fail to pay back, the interest keeps adding up and your credit scores go down.

Wrapping up

Though BNPL is not new, it has become popular in the past two years. The ease of payments, flexible eligibility criteria, easy repayment terms and conditions, and other factors are influencing the growth of BNPL services, however, there is still a long way to go.

Buy Now, Pay Later FAQs 

What is 12 months buy now, pay later? 

It refers to a financing option where you can make a purchase and delay payment for it for 12 months. During this time, you typically do not have to pay any interest on the purchase. However, after the 12-month period elapses, you will usually be required to start making payments, often with interest applied to the remaining balance. 

Is Pay Later a loan?

The short answer is YES. However, it is not a traditional form of loan where you pay interest from Day 1. When you use a "Pay Later" service, you essentially defer payment for your purchase to a later date - hence, a loan. You may not be charged interest during a promotional period, but you are still entering into a financial agreement where you will eventually need to repay the amount you owe. 

What is the limit for Pay Later? 

The limit varies from provider to provider. It also depends on your credit score and eligibility. You can expect a limit between Rs 7,500 and Rs 50,000 as the Pay Later limit. 

Is Pay Later interest-free? 

Yes, it is interest-free, but for a short time only. In most cases, the loan is interest-free for 45 days.