The Illusion of 'Free' Credit
Services like Simpl, LazyPay, ZestMoney, and Amazon Pay Later have become household names across India. Their promise is simple: purchase what you want now and pay for it over a short period, often 15 to 30 days, without any interest. For millions of young,
new-to-credit consumers, BNPL offers the instant gratification of a credit card without the rigorous application process. It’s a seamless way to manage cash flow for small and large purchases, from ordering food to buying a new smartphone. These companies make money not from interest during the grace period, but from fees paid by merchants and, crucially, from penalties charged to users who don't pay on time. This second income stream is where the seemingly 'free' service can become unexpectedly expensive.
The Anatomy of a Late Fee
Unlike credit cards, which typically charge interest as a percentage of the outstanding balance, many BNPL providers levy a flat late fee. This fee is often structured in slabs based on the purchase amount. For example, a provider might charge a flat ₹100 penalty for an outstanding amount up to ₹1,000, and a higher fee for larger amounts. Some services charge a daily penalty. LazyPay, for instance, has previously charged a penalty of ₹15 per day for delays. While a flat fee of ₹150 or ₹250 might not sound alarming on its own, its true cost is revealed when you calculate its effective annual interest rate. This is especially true for smaller purchases, where the fixed fee represents a much larger percentage of the borrowed amount.
The Shocking Annual Rate Calculation
Here’s how a small, fixed fee transforms into a high annual interest rate. Imagine you make a purchase of ₹1,000 and the repayment is due in 15 days. If you miss the deadline by a few days and are charged a flat late fee of ₹150, you have effectively paid ₹150 for borrowing ₹1,000 for a short period. To understand the annual cost, we annualize this rate. A ₹150 fee on a ₹1,000 loan is a 15% interest rate for that 15-day period. Since there are approximately 24 such 15-day periods in a year, the effective annual percentage rate (APR) isn't 15%—it's closer to a staggering 360% (15% multiplied by 24). Even if the delay is just for one billing cycle of a month, a ₹150 fee on ₹1,000 translates to a monthly rate of 15%, or an APR of 180%. This is how some researchers have found that late fees can lead to effective annual rates well over 30%, and in some cases, much higher.
Why Smaller Purchases Carry Greater Risk
The danger is most acute on small-ticket purchases. That same ₹250 late fee on a ₹10,000 purchase has a much lower effective interest rate than when applied to a ₹500 purchase. On the larger amount, it's a 2.5% charge for the month. On the smaller amount, it's a 50% charge. When annualized, the difference is enormous. This counterintuitive risk means that the consumers using BNPL for everyday conveniences—like groceries or a quick online order—are the ones who can be hit hardest by the economics of flat late fees. They might be paying an effective interest rate far higher than what even the most expensive credit cards charge, which typically have APRs between 40-53%.
Regulatory Scrutiny and Consumer Protection
The rapid growth of BNPL has not gone unnoticed by regulators. The Reserve Bank of India (RBI) has been taking steps to bring these services under a clearer regulatory framework to protect consumers. As of 2026, guidelines mandate that BNPL services must be offered through RBI-regulated entities like banks or NBFCs, ensuring greater accountability. Furthermore, there is a push for mandatory transparency in all charges, including late fees and penalties, with no hidden costs allowed. Many BNPL transactions are now also reported to credit bureaus like CIBIL, meaning a missed payment can negatively impact your credit score, making future loans more difficult to obtain.
How to Use BNPL Services Wisely
Despite the risks, BNPL can be a useful tool if managed carefully. The most important rule is to never miss a payment. Set up auto-debit or calendar reminders for your due dates to avoid penalties. Treat BNPL as a cash flow management tool, not as extra income. Before making a purchase, be certain you will have the funds to cover the full amount by the due date. Avoid using multiple BNPL apps simultaneously, as this can create a complex web of payments that is difficult to track and can lead to unintentional defaults. Finally, always read the Key Fact Statement and understand the fee structure before you click 'buy'.
