Buy Now, Pay Later (BNPL) in India: Meaning, How It Works, Pros & Risks

  

Buy Now, Pay Later (BNPL) is a form of short-term credit that allows consumers to purchase goods or services and repay the amount later, either in a single payment or through scheduled installments. In India, BNPL and similar deferred-payment options may be offered through digital lending platforms, payment services, or merchant checkout systems.

BNPL can make payments more convenient, but it can also make it easier to spend beyond your budget. The total cost, repayment period, fees, interest, and possible effect on your credit history can vary depending on the lender and the product.

In this guide, you'll learn what BNPL means in India, how it works, its potential benefits and risks, what to check before using it, and how responsible repayment can help you avoid unnecessary debt.

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What is Buy Now, Pay Later?

Buy Now Pay Later (BNPL) is a payment option that allows you to buy a product today and pay for it later in small installments. It is commonly used while shopping online in India on platforms like Amazon, Flipkart, and other e-commerce websites. For example, if you are shopping on Amazon or Flipkart, you can choose the “Buy Now Pay Later” option at checkout. Instead of paying the full amount instantly, you can split the payment into easy monthly installments using services like Amazon Pay Later, Flipkart Pay Later, or LazyPay.

Why BNPL is Popular in India

BNPL in India is becoming very popular because it provides quick and easy access to short-term credit without the need for a traditional credit card. Many users prefer it for small online purchases and flexible repayment options.

Both buyers and sellers may benefit from these agreements. The option to pay in installments can increase a buyer's perceived value of a purchase and increase revenue for the sellers. However, it might not always be a good idea to take advantage of BNPL offers, particularly if they push you to spend more than you can afford.

This makes BNPL in India a popular choice for beginners who do not have a credit card but still want flexible and convenient payment options.

Who Should Use BNPL?

BNPL is best for:

- Students who don’t have credit cards

 

- Beginners who want short-term credit

 

- Online shoppers who want flexible payments

However, it is NOT suitable for people who struggle with budgeting.

Key Takeaways

1. BNPL is a Form of credit: Although the payment may feel similar to a regular checkout option, BNPL can involve borrowing money and creates a repayment obligation.

2. Check the total cost before using BNPL: Read the repayment schedule, interest or finance charges, processing fees, late-payment charges, and other terms before accepting the offer.

3. Repayment can matter for your credit history: Depending on the lender and product, BNPL activity may be reported to credit information companies in India. Missing or delaying repayments can therefore have consequences for your credit profile.

4. Use BNPL only when you can afford the repayment: A convenient installment option should not be used as a reason to purchase something you cannot comfortably afford.

5. Compare alternatives: Before using BNPL, consider whether paying from your available savings or using another suitable form of credit would be more appropriate for your situation.

How Does Buy Now, Pay Later Work?

BNPL generally works by allowing a customer to choose a deferred-payment or installment option at checkout. Depending on the product, a regulated lender or other provider may pay the merchant or facilitate the transaction, while the customer becomes responsible for repaying the amount according to the agreed terms.

The exact process can vary between providers, so always check the lender or provider's terms before accepting a BNPL offer.

A Simple Example of How BNPL Works

1. Choose a Product or Service:

You shop online or at a participating merchant and select the BNPL or installment option, if available.

2. Review the Offer:

Before accepting, check the amount being financed, repayment dates, interest or finance charges, processing fees, late-payment charges, and other applicable costs.

3. Complete the Required Verification:

The provider may ask for information needed to assess your eligibility and comply with applicable lending and KYC requirements.

4. Accept the Repayment Terms:

If approved, you accept the credit or deferred-payment arrangement. The terms should clearly explain your repayment obligations and applicable costs.

5. Repay on Schedule:

Make each payment by its due date. Depending on the lender and product, the borrowing activity may be reported to credit information companies, so missed or delayed payments can have consequences for your credit profile.

What to Check Before Using BNPL

Before accepting a BNPL offer, look at the total amount you will repay rather than focusing only on the installment amount. Also check the Annual Percentage Rate (APR), fees, late-payment charges, repayment schedule, and the lender or regulated entity behind the product.

For digital loans covered by RBI's digital-lending framework, borrowers should receive key information about the cost and terms of the loan, including the APR and applicable charges.

     

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Some BNPL Rules of Thumb:

1) Check the Total Cost

Don't focus only on the monthly installment. Check the total amount you will repay, including interest, processing fees, late-payment charges, and any other applicable costs.

2) Check the APR and Key Fact Statement

Before accepting a digital loan, review the Annual Percentage Rate (APR), repayment schedule, fees, and other important terms. For applicable digital loans, the lender should provide a Key Fact Statement (KFS) before the loan agreement is executed.

3) Borrow Only What You Can Repay

BNPL should not be used to buy something that you cannot comfortably afford. Make sure the repayment fits within your monthly budget.

4) Pay on Time

Missing or delaying repayments can result in additional charges and, depending on the lender and product, may affect your credit history. Set reminders or use automatic payments if appropriate.

5) Compare Alternatives

Before using BNPL, consider whether you can pay from your savings or whether another form of credit is more suitable. Choose the option with the clearest terms and a manageable total cost.

BNPL in India: What to Know

BNPL and other deferred-payment products have become part of India's digital credit and e-commerce ecosystem. Depending on the product, credit may be provided through a bank or NBFC and facilitated through a digital lending platform, lending service provider, payment service, or merchant platform.

For digital lending products covered by RBI's framework, borrowers should be able to understand the cost and terms of the credit before accepting it. The RBI framework also requires applicable lending through digital lending apps and certain deferred-payment products offered through merchant platforms to be reported to credit information companies. 

Because BNPL products can differ significantly, consumers should check the name of the regulated lender, the total repayment amount, APR, fees, repayment schedule, and how the product may affect their credit history.

RBI also maintains a public repository intended to help consumers verify the association of digital lending apps with regulated entities. 

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In conclusion

BNPL can provide a convenient way to manage certain purchases, but it should be treated as a form of credit rather than simply a payment convenience. Understanding the total cost, repayment schedule, fees, and potential effect on your credit history can help you make better financial decisions.

As digital credit continues to evolve in India, responsible borrowing and consumer awareness remain important. Before using BNPL, compare the available options and make sure the repayment fits comfortably within your budget.

FAQ

Q1. Is Buy Now, Pay Later safe to use in India?

 BNPL can be useful when used responsibly, but it is important to understand the repayment obligation before using it. Check the total cost, APR, fees, repayment schedule, lender details, and applicable charges. Borrow only an amount you can comfortably repay on time.

Q2. Does Buy Now, Pay Later affect my credit score?

BNPL can affect your credit history depending on the lender and the type of product. For applicable digital lending products, borrowing activity may be reported to credit information companies in India. Before using BNPL, check the provider's terms to understand how repayments are reported. Missing or delayed payments may negatively affect your credit profile.

Q3. Can I use Buy Now, Pay Later without a credit card?

Yes. BNPL can be available without a traditional credit card, depending on the provider and product. Before using it, check the eligibility requirements, repayment terms, fees, and lender details.