The Festive Lure of Instant Credit
Buy Now, Pay Later has become a go-to payment option for millions of Indians, especially during major festive sales. Platforms like Amazon, Flipkart, and countless others integrate BNPL services that offer instant, short-term credit with minimal documentation.
The appeal is obvious: you can purchase products immediately and pay for them later, often in interest-free instalments. This frictionless experience encourages spending, but what many users don't realise is that each BNPL transaction is a form of credit. Under RBI guidelines, these transactions are often treated as small personal loans, and how you manage them is reported to credit bureaus like CIBIL.
The Hidden Damage of Hard Inquiries
Every time you sign up for a new BNPL service, the provider may perform a credit check. This can be recorded as a 'hard inquiry' on your CIBIL report. While a single inquiry has a minimal effect, applying for multiple BNPL services during a festive shopping spree can result in several hard inquiries in a short period. Lenders view this pattern as a sign of being 'credit-hungry', which can make you seem like a high-risk borrower. Each hard inquiry can temporarily lower your CIBIL score by a few points, and the cumulative effect of multiple checks can be significant. This is a particular risk with unsecured credit like personal loans and BNPL, which, unlike secured loans, often don't have their inquiries bundled together by scoring models.
The Fragmented Debt Trap
Juggling multiple BNPL accounts is one of the biggest pitfalls. It's easy to sign up for LazyPay for a food order, Simpl for groceries, and Amazon Pay Later for a big-ticket purchase. Each service has its own billing cycle and due date. This fragmentation makes it incredibly difficult to track your total outstanding debt. A small payment of a few thousand rupees seems harmless, but several such payments across different apps can add up to a substantial amount. Missing a payment, even a small one, is reported to credit bureaus and can cause your CIBIL score to drop. A single missed payment on a BNPL account can be treated as seriously as a default on a larger loan.
How Lenders Perceive Multiple Small Loans
Your CIBIL report doesn't just show if you paid on time; it also shows the types of credit you use. Having numerous small, active loans from multiple BNPL providers can be a red flag for lenders. Even if you are diligent with repayments, this activity can signal financial instability or a reliance on short-term credit to manage expenses. When you apply for a significant loan, like a home or car loan, the lender sees a history crowded with small-ticket loans, which can paint a picture of a borrower who may be overleveraged. This perception of risk can lead to loan rejection or less favourable terms.
The Credit Utilisation Factor
Some BNPL products function like a credit line. Your credit utilisation ratio—the amount of credit you're using compared to your total available credit—is a major component of your CIBIL score. While traditionally associated with credit cards, BNPL balances can also be factored in. If you have multiple BNPL accounts and use a high percentage of the available limit on each, it can increase your overall credit utilisation. A consistently high utilisation ratio signals to lenders that you are heavily reliant on credit, which can negatively impact your score.
