Buy Now, Pay Later (BNPL): The Easy Credit That Isn’t Always Easy
We all witness the option to “Buy Now, Pay Later” (BNPL) while shopping for anything online. It sounds simply amazing for the shoppers with access to buy now and pay for the same later in small installments.
As per the latest data, the global BNPL market is expected to grow to about US$560 billion by 2025. If we check India itself, the market size of BNPL is expected to be US$21.95 billion this year, with a growth rate of 13.4% per year.
BNPL (Buy Now, Pay Later) is becoming a quite usual option on checkout pages, and more and more young shoppers are finding it attractive. However, BNPL is not as simple as it seems because of the hidden financial risks you should be aware of.
How Does BNPL Work?
Consider BNPL as a mini loan from the fintech company that you need to repay later with additional/hidden charges. A lot of companies offer BNPL at minimal or no interest rates for a few months, making it easier to pay off the large installments. If you don’t own a credit card, BNPL can offer ease in payment flexibility. However, using it smartly and responsibly is the key.
Why Consumers Love Buy Now, Pay Later
Fast approvals, payment splits, and ease of payment make BNPL so popular these days. Instead of making large payments in one go, BNPL allows you to pay specific amounts every month.
In comparison to credit cards, BNPL comes with minimal documentation and seamless onboarding.
The Hidden Risks Of BNPL
With easy money lending, BNPL also brings risks for the lenders. Small installments may blur the amount you’re spending, while the overall bills pile up. Missing repayment on time can lead to late fees and a negative impact on the CIBIL score.
While credit cards release a monthly bill statement every month, BNPL has no organized tracking with multiple due dates.
BNPL and the Financial System
BNPL is mainly offered by fintech companies, based on the user data and previous transaction history.
RBI is also keeping a keen eye on the rapid and small loans to ensure transparency and control.
The formal BNPL is a little less regulated than credit cards or bank loans, making it more feasible for small lending choices.
Defaults and Consumer Impact
Missed repayments or late payments are a serious concern in the credit and BNPL market. This is a major problem for lending companies, forcing them to make strict rules. While some BNPL firms have lowered the credit limit, others are rejecting BNPL applications after scrutiny.
Default consumers are also making it difficult for their future lending chances. BNPL, along with the ease of credit, can make the person overburdened with credit with no roadmap for repayment.
Future of BNPL
With the immense popularity and acceptance of BNPL (Buy Now Pay Later), it seems to go beyond e-commerce. We can see the future of BNPL frameworks in offline retail, travel, healthcare, and general everyday purchases.
With the advancements of AI in finance, there is huge innovation in terms of AI credit scoring, digital payments, and more. These can also be driving BNPL growth and integration with other financial products or services.
BNPL vs. Other Credit Options
Credit cards and bank cards offer credit rewards, flexible usage, and monthly statements. In addition, these cards also bring a huge amount of interest, fees, and other terms.
Personal loans are long-term offerings with lower interest rates. However, there is a lengthy process of documentation and approval for the same.
On the contrary, BNPL is quicker, simpler, and perfect for small amounts. However, it lacks organised tracking, safety measures, and transparency.
Final Comments
Hence, BNPL can be a very smart way to handle large payments with smaller installments. However, spending only what you can pay for is the thing to remember.
Since you’ve read till here, you might want to check articles on financial awareness and credit options at StockYaari for deeper insights.
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This analysis is for informational purposes only. Please consult a SEBI-registered financial advisor before investing.
– Chandan Pathak
Equity Research Analyst, StockYaari