Want to UPI now and pay later? Here's how to do UPI with less balance

Do you know you can still pay through your Unified Payments Interface (UPI) application even if your bank account is insufficiently funded?

The Reserve Bank of India (RBI) has now permitted banks to offer a credit line facility to UPI users. A pre-approved credit line allows you to make purchases now and pay the bank back later. But, how does it work?

UPI now, pay later

The RBI has recently enabled transfers from pre-sanctioned credit lines at banks through the UPI network.

"Under this facility, payments through a pre-sanctioned credit line issued by a scheduled commercial bank to individuals, with the prior consent of the individual customer, are enabled for transactions using the UPI system," the RBI said in a September 4, 2023 notification.

This action lets you link these bank-issued credit lines to the UPI and make payments.

What has changed for UPI users now?

Individuals could previously only link their savings accounts, overdraft accounts, prepaid wallets, and credit cards to the UPI system. However, you can now use your pre-approved credit line to make UPI transactions. Let's go over how it works.

What exactly is a pre-approved credit line for UPI users?

Pre-approved credit is nothing more than a bank's overdraft facility. According to bank websites, this facility can be used through UPI applications such as Google Pay, Paytm, MobiKwik, and mobile banking UPI applications.

How does a pre-approved credit line work?

First, banks must take your consent to set up a credit line. There will be a set limit. Once it is approved, you can spend that pre-sanctioned amount through the UPI app and clear your dues later by the due date.

Some banks charge interest on the amount used from the credit line, while others offer a credit-free period, which means there is no interest on the amount being used if it is repaid within a predetermined time period. The second option is quite similar to how a "buy now and pay later"' (BNPL) scheme works.

HDFC Bank and ICICI Bank start credit on UPI

Among popular banks, HDFC Bank and ICICI Bank have already launched credit lines — HDFC UPI Now Pay Later and ICICI PayLater — that their customers can use for UPI transactions.

While activating the feature at HDFC Bank, you have to pay a one-time processing fee of Rs 149. The bank will open an account for you and link your debit card to it. Then, you have to link this "pay-later" account to your preferred UPI app.

At ICICI Bank, each PayLater account has a dedicated UPI ID, which can be used to make payments through the UPI mode. There is no activation fee. However, there is a service charge if you use more money than the limit set by the bank.

What is the limit for HDFC and ICICI bank's credit lines?

Both HDFC Bank and ICICI Bank allow a credit line of up to Rs 50,000 per user, based on their eligibility. This credit limit may differ from one customer to another, depending on the income, spending patterns and credit history.

Currently, you can only pay merchants using the UPI credit line or pay-later facility. Transferring money to individuals or peer-to-peer UPI transactions are not allowed.

More banks to join in

After the latest announcement from the RBI, more banks are likely to start offering such credit line facilities to customers for UPI payments. 

"Banks may, as per their Board- approved policy, stipulate terms and conditions of use of such credit lines. The terms may include, among other items, credit limit, period of credit, rate of interest, etc.," the RBI said in its notification.