Should you ditch your credit card and consider 'buy now, pay later'?

Buy now, pay later (also known as BNPL) adoption has grown rapidly during the pandemic. It is now regarded as an alternative to credit cards. It is set to become the fastest-growing online payment method, from a 3 per cent share in 2020 to 9 per cent in 2024, according to Goldman Sachs. Should you ditch your credit card and consider BNPL?
 
How BNPL works
 
BNPL is an instant credit option.
 
Anup Agrawal, business head, LazyPay, says, “It is an interest-free, deferred payment option that allows consumers to make purchases during online checkout or offline transactions, with no upfront payment, and an option to repay within a stipulated period.”
 
Different payment choices are available.
 
Pankaj Bansal, chief business officer, BankBazaar, says, “On selecting BNPL, you will see alternatives ranging from one-shot payment after 30 days to 3-12-month equated monthly instalment (EMI) schemes.” It may also be possible to convert the one-shot payment into EMIs at a later date.
 
Consumers have to go through a one-time know-your-customer.
 

Says Gaurav Aggarwal, senior director, PaisaBazaar, “The player offering BNPL may consider the credit score and credit profile of the consumer before providing this credit facility.”
 
Several players, such as LazyPay, Capital Float, and ZestMoney, to name a few, offer it.
 
Pros and cons
 
BNPL is a more inclusive credit option.
 
Says Gaurav Hinduja, co-founder and managing director, Capital Float, “BNPL has emerged the preferred credit option for young and digitally savvy consumers, who are using it to buy essentials and to finance their aspirational purchases.”
 
Usually, only customers with stable incomes and considerable credit history are offered a credit card. On the other hand, even youngsters without a long credit history and gig workers whose incomes are irregular stand a chance of availing of BNPL. Onboarding is also faster for BNPL.
 
Gaurav Chopra, founder and chief executive officer of IndiaLends, says, “BNPL gets approved without a hard check on your credit history.”
 
The soft enquiry conducted by the lender will not affect your credit score.  However, BNPL is not available universally.
 
Chopra adds, “Not all retailers offer this option currently.” Also, different online and offline retailers are likely to offer BNPL from different lenders. The same credit card, on the other hand, can be used across a large number of retailers.
 
Credit cards can also be used for other payments, besides purchases from retailers. The customer also gets rewarded for using them. Chopra says, “Credit cards offer rewards, promotional offers, cashback, etc that BNPL doesn’t.”
 
BNPL generally offers you credit for 15-45 days, after which the interest rate charged ranges from 0-26 per cent annually. Credit cards offer you 30-40 days of credit, after which they charge interest in the range of 24-48 per cent.
 
Before selecting a BNPL plan, find out about the credit check requirement.
 
Bansal adds, “Some BNPL plans send a hard query to the bureau each time you opt for them. This can impact on your credit score adversely.”
 
What you should choose
 
If you have a low credit score or insufficient credit history due to which you are facing trouble in getting a credit card, BNPL might be the right choice for you.
 
If you can afford to pay in one shot, but nonetheless are looking for some flexibility in repayment, and at the same time want to earn reward points, then a credit card is right for you. Those who don’t want to use their credit card or can’t and want to defer payments may go for BNPL.
 
Finally, BNPL is a quick and easy to sign up for. It’s easy to open multiple accounts. Before you know it, you could end up overspending. So, track your spends closely.