Buy now pay later: Key factors to consider before using credit facility

It’s tempting to be able to buy that latest gadget or swanky kitchen appliance without having to shell out the money upfront. And supposedly, that’s why consumers can be seen flocking to Buy Now Pay Later (BNPL) options these days.

However, before going on a BNPL-induced spree, it’s vital to keep in mind some caveats especially for those only beginning to build up their credit history.

BNPL interest-free windows are usually between 15-45 days. So, it’s advisable to go for a BNPL scheme only if consumers are sure that they can repay the amount within that period, said Rajat Deshpande, CEO and Co-founder at FinBox while talking to CNBC-TV18.

“Past that mark, the lender will charge interest on the unpaid sum and in some cases, levy hefty late payment fees,” he said.

Adding to this, Upasana Taku- Co-founder and COO at MobiKwik.com said that defaulting on the payment can also spoil one’s credit score and make it difficult for them to apply for bigger ticket loans. So, one should be mindful of that.

Depending on the purchase amount, Deshpande said that it’s wise to compare credit cards with BNPL to make the right choice in that particular instance.

“Credit cards offer the ability to convert purchases into monthly EMIs - which many BNPL providers do as well, but not all of them. It also makes sense to consider additional fees that may get lost in the fine print. Most credit cards come with onboarding charges and annual fees. Bank-led BNPL providers, however, don’t casually charge processing fees,” he added.

Consumers must ensure that they read all related documentation, and don’t opt for BNPL if they are already paying off prior debts, Deshpande said.

"The small loan amounts that characterize BNPL make it very easy for borrowers to fall into debt traps without realizing it," he told CNBC-TV18.

Nehul Malhotra, Head- Consumer Lending at BharatPe further said that customers should always sign up with credible BNPL service providers so that they do not fall into any kind of problem in the future.

These providers, he said, will clearly explain the various terms and conditions including those for repayment and charges. In addition to this, the user interface would be explained.