Buy Now Pay Later: Is the Hype Real?

Whether you are shopping for apparel, ordering food/grocery, buying cosmetic products, purchasing medical essentials, or booking travel tickets, there are now many online businesses that allow you to pay via Buy Now Pay Later (BNPL) option. Though several BNPL products have been in the market for quite a few years, the BNPL trend gained speed in 2020 during the pandemic when a lot of millennials were looking for easy credit to boost their budget. This inclination of customers towards BNPL, in turn, triggered a wave of new players joining the Buy Now Pay Later bandwagon. Big e-commerce giants like Amazon and Flipkart, leading private banks, and popular payment players such as Paytm, Freecharge, Mobikwik, etc. have also launched their BNPL products lately to attract more customers.

What is BNPL?

Pay later Apps is a payment option that allows you to shop or order whatever you want/need without having to pay for it at that very moment but later. In other words, it is like a small-ticket loan that you can get from your preferred provider and repay after a set time period. The main reason behind the popularity of BNPL is that it provides ultimate convenience, instant credit, and is easier to get even with no credit history. However, this should not be mistaken with no relatability to credit score. No matter if you’re building your credit score or already have a credit history, any default in repayment of BNPL dues adversely affects the CIBIL score and attracts penal charges or interest on the borrowed amount.

How BNPL works?

When you choose a BNPL product, the lender requires you to complete KYC formalities and provide certain details. The lender then conducts a credit check if you have a borrowing history to decide your credit limit. In case of no credit history, your credit limit is determined based on your purchase behavior. This data is collected via analytics. Once you’ve successfully signed up and have been allotted a credit limit, you can then use the BNPL payment option to make payment. All that you need to do is select the BNPL option on the checkout page to complete the transaction. A consolidated bill for all your spending is generated once a month which you need to pay by the set due date. The average interest-free period offered by most lenders varies between 30 and 45 days.

How is BNPL different from Credit Card and Personal Loan?

Credit cards and personal loan options have been in the market for a long time, but some key factors are pushing borrowers away from these to opt for BNPL.

  1. Debt Risk: Credit cards and personal loans are big-ticket borrowing options that pose a greater risk of default in case you borrow too much. On the other hand, BNPL is a small ticket loan with less risk of too much debt and is easier to repay.
  2. Interest Rate: Both credit cards and BNPL offer an initial interest-free period. However, a personal loan is an unattractive option when compared with credit cards and BNPL in terms of interest rates. A personal loan has no interest-free time window associated with it and the interest rate can go up to as high as 24% per annum.
  3. Fees and Hidden Charges: Unlike credit cards and personal loans, most BNPL providers do not charge a joining or processing fee. Also, the tricky terms & conditions and hidden charges linked with credit cards and personal loans make them less desirable than BNPL.
  4. Easy Access: The requirement of a long credit history to avail a personal loan or credit card is one of the biggest factors restricting their scope and reach to a wide range of borrowers. Contrary to this, getting instant BNPL credit is significantly easier.
  5. Convenience of Use: Making a payment via credit card is time-consuming as it requires you to remember your PIN/CVV and wait for OTP. On the other hand, paying via BNPL is super simple–all you need to do is just tap.
  6. Instant Approval: Both credit card and personal loans, in most cases, have a long application and approval process. In contrast, applying for BNPL just takes a few minutes and you get approved instantly.

Why Millenials and GenZ Prefer BNPL?

The biggest reason behind the success of Buy Now Pay Later amongst millennials is its easy availability to people who don’t have a long credit history or are new to borrowing. Moreover, BNPL being a small ticket-size loan is easier to repay on time, so it’s the ideal option for Gen Z and millennials to build their credit score gradually.

In addition to the above, the fact that the pandemic pushed more and more people towards online shopping further led to the boom in BNPL’s popularity. COVID-19 brought about a paradigm shift in how people meet, connect, shop, and borrow. The knee-jerk reaction of employers across industries–laying off employees, forced millennials to rethink their finances in a completely different way. In such tough times, catering to their need to boost monthly budget, grow savings, and fulfil shopping desires, BNPL somewhere came into the picture as a blessing in disguise, offering ultimate convenience, flexibility and almost everything they were craving for. For these reasons, today, GenZ and millennials are the biggest online spenders and make up the majority of Buy Now Pay Later users across the country.

As the online shopping trend continues to expand across the country, BNPL is now gaining traction in Tier-II and Tier-III cities as well. From spending on fashion and lifestyle to upgrading electronics and paying for online courses, Buy Now Pay Later is helping customers in unique ways.

If you’re looking for a Pay Later product, then we recommend trying Freecharge Pay Later. It has some great features that will surely make you fall in love with it.

  • Interest-free credit of up to Rs.10,000 every month
  • One-tap payment across 25,000+ stores
  • Zero processing fee and no hidden charges
  • Convenient 30-day repayment cycle
  • Instant approval
  • Exclusive cashback offers on top brands across food, grocery, online shopping and other categories.

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