Explained: How 'buy now pay later' differs from personal loan?

The 'buy now, pay later' aka BNPL provides customers with the convenience of payments for essential purchases along with a 15-30 day cushion for repayments without worrying about salary irregularities.

Due to the emergence of digital infrastructure, the e-commerce industry's growth, an increase in online shoppers, an increase in digital payments, and the convenience and affordability given by short-term credit, India is already riding this new BNPL wave.

According to the Global Payments Report by Worldpay, BNPL is emerging as India's fastest growing e-commerce online payment method, expected to grab nine percent of the overall e-commerce market share by 2024.

According to Vivek Veda, Co-Founder & CFO, KreditBee and Co-Founder, FACE (Fintech Association for Consumer Empowerment), personal loans are the go-to financing option for individuals facing an emergency financial crisis.

“This is the best bet if customers want to borrow more than Rs 1,00,000,” Veda says.

A BNPL payment mode, Veda suggests, can be opted when customers require an amount less than Rs one lakh. For BNPL, the account can be created quickly and money can be accessed within minutes.

A personal loan may require some documentation while BNPL does not require any documentation.

As per Veda, this has allowed consumers to purchase and delay the payment by 14-30 days or repay the amount over several instalments.

"BNPL only runs a soft check on credit history. The simplicity with which one can apply and access BNPL gives a lot of flexibility to the user thereby increasing their spending power," Veda tells.

Typically, according to Veda, a reason to apply for personal loans can be to meet various financial goals like marriage, education, house renovation, vacation, etc.

On the other hand, the usage of BNPL comes in handy to buy goods like food, apparel, personal care items, smartphones, refrigerators, etc.

The interest rate on a personal loan is fixed. Whereas this differs a lot when it comes to BNPL.

"There are no interest or fees levied on amounts ranging from Rs 5,000 to Rs. 25,000, and the payback term is between 15 and 45 days. Interest is charged on credit limits ranging from Rs 25,000 to Rs 1,00,000, with payback cycles ranging from one to three months," Veda explains.

While a personal loan typically ranges from 12 to 84 months, BNPL is a short-term loan that can range from 15 days to 3 months.

According to Veda, the financial objectives should determine whether one should choose BNPL or a personal loan.

"Personal loans should be opted when customers need a loan for a higher amount, and BNPL is a good source of credit for small-ticket items," he suggests.