What Is Buy Now, Pay Later (BNPL)?
BNPL is a short-term financing option that allows you to purchase a product immediately and pay for it later in installments. Unlike traditional credit cards, the approval process is often instant and requires minimal documentation, making it a popular
choice at checkout on e-commerce sites and even in physical stores via UPI. Most plans offer an interest-free period, typically 15 to 30 days, during which you can pay the full amount without any extra cost. However, it is crucial to remember that BNPL is a form of credit; it's a small, unsecured loan.
The Festive Spending Trap
During festive periods like Diwali, the pressure to spend on gifts, electronics, and celebrations increases. BNPL schemes make it easier to give in to impulse purchases because the immediate financial impact feels small. Retailers heavily promote these offers, knowing that splitting a large payment into smaller, interest-free installments reduces the friction of spending. The danger lies not in a single large purchase, but in accumulating several small BNPL debts across multiple platforms, which can quickly become overwhelming.
Create a Strict Festive Budget
Before you start shopping, create a detailed budget specifically for festive expenses. Decide how much you can realistically afford to spend and allocate funds for different categories like gifts, travel, and food. Treat BNPL not as extra money, but as a payment method that must fit within your pre-approved budget. A good rule of thumb is to keep your total monthly EMI payments, including any BNPL plans, below 30-40% of your take-home income. Some experts even suggest keeping BNPL commitments to just 10-15% of your monthly pay.
Always Read the Fine Print
While many BNPL plans are advertised as 'zero-interest', the real costs are often hidden in the terms and conditions. Before you click 'accept', look for processing fees, late payment penalties, and the interest rate that applies after the free period ends. Some providers charge a penalty of ₹200 to ₹500 for a single missed payment. Under RBI guidelines, lenders must provide a Key Fact Statement (KFS) that discloses all charges, including the all-inclusive Annual Percentage Rate (APR). If the terms are unclear, it is a major red flag.
Limit Yourself to One or Two Apps
Using multiple BNPL services simultaneously creates what is known as 'fragmented debt'. Juggling different balances, due dates, and repayment cycles makes it incredibly easy to lose track and miss a payment. Lenders may also view multiple active accounts as a sign of 'credit hunger', which can negatively impact your perceived creditworthiness. To stay in control, choose one, or at most two, BNPL platforms and stick to them. This makes tracking your total outstanding amount much simpler.
Understand the Impact on Your Credit Score
Contrary to what some believe, using BNPL services can significantly affect your credit score. Many BNPL providers report your payment history to credit bureaus like CIBIL. Each BNPL transaction may be recorded as a small personal loan on your credit file. Making timely payments can help build a positive credit history, but even one missed or delayed payment can lower your score, making it harder to get approved for larger loans like a home or car loan in the future.
