The Rise of Instant Credit
Buy Now, Pay Later schemes have exploded in popularity across India. They offer a simple proposition: get what you want now and pay for it in a few interest-free instalments over 15 to 90 days. With minimal documentation and instant approval, BNPL appeals
to young, salaried professionals and students who want flexibility without a traditional credit card. However, what many users don't realise is that BNPL is a form of credit. Thanks to evolving regulations from the Reserve Bank of India (RBI), these small, seemingly harmless transactions are now treated like any other loan.
How BNPL Impacts Your CIBIL Score
Previously, many BNPL providers operated in a grey area, and defaults often went unreported. That has changed. RBI guidelines now mandate that lending of any tenure must be reported to credit information companies (CICs) like CIBIL. This means every BNPL transaction, whether for ₹500 or ₹50,000, can appear on your credit report as a small personal loan. Making payments on time can help build a positive credit history, especially for those new to credit. However, the reverse is far more damaging. A single missed or delayed payment is flagged as a negative event, causing a direct hit to your credit score.
A Small Default Causes Big Damage
It’s easy to dismiss a missed ₹1,000 BNPL payment as insignificant, but to a credit bureau, it signals financial indiscipline. Since BNPL facilities are short-term, unsecured loans, a default suggests an inability to manage even minor financial obligations. This can sometimes cause a more significant drop in your CIBIL score—potentially by 50-100 points over time—than a delayed EMI on a larger, secured loan like a car loan. Lenders see a pattern of missed BNPL payments as a major red flag, indicating you might be overextended or a high-risk borrower.
The Home Loan Hurdle
When you apply for a large, long-term loan like a home loan, lenders conduct a thorough review of your financial history. Your credit report is the first document they scrutinise. Any defaults or history of late payments, no matter how small, reduce your creditworthiness. Even if a BNPL loan doesn't appear on a credit report, underwriters can spot recurring payments on your bank statements and will factor them into your debt-to-income (DTI) ratio. Seeing multiple small defaults tells a lender you are a high-risk applicant for a loan that spans decades. This can lead to an outright rejection of your home loan application or an offer with much stricter terms and higher interest rates.
Personal Loans vs. BNPL
A personal loan is a more formal credit arrangement. The terms, interest rates, and repayment schedule are clearly defined from the start, leaving no room for ambiguity. Because they are structured and often for larger amounts, borrowers tend to treat them with more seriousness. BNPL's convenience, on the other hand, can encourage impulse spending and make it easy to lose track of multiple small debts across various apps. Juggling several BNPL accounts can create a fragmented debt trap, where the total outstanding amount quickly becomes unmanageable. While a personal loan default also hurts your credit, the casual nature of BNPL makes it a more common pitfall for the financially undisciplined.
