What is BNPL? it will take a lot of interest and a lot of extra charges will also be charged. Now let’s talk about BNPL. How does it work? What is the difference between No Cost EMI and BNPL?
What Is BNPL?
BNPL’s full form is Buy Now Pay Later. So we understand from the name that we purchase it now and will have to pay for it later. So it seems like it works like No Cost EMI.
So if we look at the history of BNPL when it started, it worked exactly like No Cost EMI. But why are these two different terms? Because the target consumers are different. So first let’s understand what is the basic of this No Cost EMI?
You need a credit card for this. That is, you have some kind of credit history. And when do you get a credit card? When you have an income of at least 1.44 lakhs per year. That is when you get a credit card. So in this case, many people do not get this credit card. So all the people who have less than 1.5 lakhs income have become their target market. So for such people, this option of BNPL came out.
Understanding BNPL With Example
So if we take an example here, suppose there is a college-going student and he gets 4000 rupees every month as a pocket money. And he thinks that why not I buy sneakers for 6000 rupees.
So now he is not getting the option of No Cost EMI. Now suppose he gets the option of BNPL. That you can give this money in equal instalments in three months. So now by giving 2000 rupees per month, maybe its affordable.
Problems With BNPL?
So in this way, a very large consumer segment has now started coming to BNPL companies. But here there was a very big problem which are as follows”
- Weak KYC Norms: The co-branded cards that were going on, all the BNPL companies were not actually doing such good KYC.
- Unaware Of The Total Credit: Secondly, it was not known that how much credit the consumer took because now these BNPL companies were not directly NBFCs or they did not have any banking license.
- No CIBIL Score: There was no credit score or CIBIL score.
So here is the intervention of RBI. This no cost period of three months was completely banned by RBI. And simply said that this kind of co-branded cards will not work. And whichever company does not have NBFC license or banking license, it cannot target this kind of BNPL consumers.
But has this BNPL ended? No, now this BNPL has not ended. But in this scheme of buy now pay later, you will generally see that now BNPL schemes are run with interest. You will see with Amazon, Flipkart or other e-commerce players. You still get to see this BNPL option. But at the same time, high interest cost is also charged.
It is also shown there transparently that if you go to the BNPL option, that is, you want to pay for it for three months every month or for six months or twelve months, then you can do it. But every month you will have to pay an interest of 24% which is very high.
Hidden Charges In BNPL
So you have to pay interest charges in BNPL apart from this, all the charges that we have seen in No Cost EMI are also charged as additional charges here For example, if you default on any EMI, then late payment charges. Interest will be extra on it, that is different.
Also, GST will be charged on interest, late payment, processing fees will also be charged.
Difference Between No Cost EMI And BNPL
The difference between No Cost EMI and BNPL is as follows:
| Feature | No-Cost EMI | BNPL |
|---|---|---|
| Interest charges | No interest charged | May or may not charge interest, depending on the provider |
| Repayment period | Typically 6-9 months | Can vary from 15 days to 90 days |
| Eligibility | Requires a credit card | Can be used even without a credit card |
| Availability | Offered by credit card issuers and retailers | Offered by fintech platforms and some retailers |
| Impact on credit score | No impact unless missed payments | No impact unless missed payments |
| Budgeting | Allows planned budgeting for large purchases | Convenient for short-term financing |
| Interest-free period | Typically 45 days for credit cards | Up to 90 days for some BNPL providers |
| Offers | Reward points for subsequent purchases | Cashback or discount offers on goods or services |
| Hidden costs | Processing fee or higher product price | Late payment fees, interest charges if not paid within the agreed timeframe |
| Credit reporting | May not report transactions to credit bureaus | May not report transactions to credit bureaus |
| Psychological effects | Can lead to overspending due to perceived benefits | Can lead to overspending due to perceived benefits |
| Best practices | Pay the full amount due every month, use cash or debit cards whenever possible, compare prices and fees | Pay the full amount due every month, use cash or debit cards whenever possible, compare prices and fees |