Buy now pay later (BNPL) is a short-term credit facility extended either by banks or online merchants through their tie ups with banks or NBFCs (non-banking financial corporations).
These facilities usually allow customers to pay for their purchases later as they buy goods on credit for a period anywhere between 15 days to 365 days. The interest-free period usually varies between 15 to 30 days. After this period, the customers can make the payment either in one go or in equated monthly instalments (EMIs).
This credit facility is quite distinct in a way that one doesn’t need to go for a KYC (Know Your Customer). The RBI regulations stipulate that the loans given via e-KYC procedures are treated as term loan for a period of 12 months and limited up to ₹60,000 a year, unless a full-fledged KYC is carried out.
Amazon extends this facility, known as Pay Later, through its tie-up with CapFloat Financial Services and IDFC First Bank. After their basic e-KYC is conducted, the customers are approved for loans which can be used to buy products on Amazon website.
The maximum amount of credit given for one month is ₹10,000, while this limit increases along with the duration of loan. Amazon customers are allowed to make the payment in 3/ 6/ 9/ 12 EMIs for which they are charged interest.
HDFC Bank offers pay later option, known as FlexiPay, to its savings and current account customers, and enables them to buy products from a multitude of merchants including Myntra, Flipkart, Rentomojo, MakeMyTrip, Lakme, Metro Shoes, Leaf Studies, Micromax, and Urban Ladder, etc. The minimum loan amount is ₹1,000 and maximum amount is ₹60,000.
For the first 15 days, there is no interest, and after that, the customer is supposed to pay interest for 30 days, 60 days or 90 days as the case may be.
Similar to loan
Although this credit facility is convenient to customers in more ways than one, this is somewhat similar to loan. Just as you borrow a product via credit card or take a personal loan for a purchase, this credit facility is like a loan that entails a rate of interest. So, if you can afford to pay immediately, you might want to avoid this facility to spare yourself from incurring an extra burden of interest.
However, this loan is relatively better than a personal loan because it doesn’t include any processing fee. Also, the rate of interest is less than what a credit card charges. But one is made to pay additional charges such as pre-closure charges. HDFC Bank charges pre-closure charges of 4 percent plus GST of 18 percent.