Should you opt for 'buy now pay later' this festive season?

'Buy now, pay later' (BNPL) is the latest finance fad among Indian consumers as fintech companies try to woo them with enticing offers this festive season. Boosted by aggressive promotion particularly on multiple e-commerce platforms along with minimal and easy know-your-customer (KYC) processes, shoppers especially youngsters are lapping up these schemes.

As an easy short-term credit facility, BNPL allows borrowers to buy the stuff they need and pay at a later date. The moot point is: Should you go for it?

As a short-term financing service, BNPL is offered as a product allowing customers to spread out payments for a purchase without any additional interest.

The modus operandi usually is: The fintech firm offering BNPL scheme ties up with e-commerce players or food delivery platforms or even travel booking players and lets customers borrow to pay for the shopping or services. The customers have to pay back within a stipulated time that could range from a few days to a few months, including options of several installments at no additional interest.

So far so good! But wait, how is it different from an EMI scheme on credit or debit cards or any other finance scheme?

The BNPL addresses the unmet credit needs of the fast-growing digitally savvy millions of Indians by combining the convenience of everyday mobile payments with other benefits, Upasana Taku — Co-Founder and COO at MobiKwik told CNBC-TV18.com.

"India has only 30-35 million unique credit card users resulting in a low credit card penetration. As a result, a large part of the Indian population is unserved or underserved by the formal credit market. BNPL comes here as the rescue as the fastest growing alternate credit option for consumers," Taku said.

On who should use it, it is suitable for those individuals who do not have a credit card but have the capacity to pay back small to mid-ticket loans, she added.

This festive season that the consumers can make most of BNPL as it comes with an instant credit option, safety, and convenience, Taku said.

“As BNPL is an interest-free/ low-cost option, it can help in reducing the extra financial burden this festive season and better management of cash flows for emergency requirements at the end of the month."

BNPL is that it works well as long as a borrower is able to maintain fiscal discipline and repays on time.

Delays and missing payments bring late fees and interest accruals, that may cascade into more burden if left unchecked. Uncleared dues and debt impact credit score, affecting the overall financial well-being of the consumer.