With the emergence of new-age fintech startups like Bajaj Finance, Slice, UNI, etc., Buy Now Pay Later (BNPL) has become an easily available and one of the most convenient methods of making big purchases. While traditional credit cards do allow you to make purchases even when you do not have enough funds and repay the amount within 30 to 50 days, BNPL schemes (including BNPL cards) take this to the next level by allowing you to split your expenditure into monthly installments (usually payable over then next 3 to 9 months). While there is nothing wrong with BNPL cards if you are financially punctual and always make the payments on time, there are certain points that you must keep in mind before you apply for a BNPL Card or for that matter, make any significant purchase on installments.
Impact on Credit Score
Most Pay Later Cards (BNPL Cards) are easier to get approval for than regular credit cards issued by traditional banks. For example, Slice claims that you do not need a credit score before applying for Slice Super Card. However, since BNPL cards are issued against an unsecured line of credit which technically is nothing but a personal loan, every time you apply for a BNPL Card, an enquiry is placed with the credit bureaus regarding your credit profile and as a result, your credit score might suffer. Since personal loans and credit cards are considered as two different financial instruments by the RBI, enquiries for credit cards and BNPL cards have different impacts on the credit score of the applicant.
This one is obvious, but just to make it a point, it is important that you are aware of the repayment schedule of any purchase that you are going to make with your BNPL Card. Some cards like Slice and UNI Card allow you to split your total monthly expenditure into three equal installments to be paid over the next three months, while others like Bajaj Finserve Card allow you to make individual purchases on EMIs- that is, you purchase an item and the amount is to be repaid in installments over the next few months (installments are calculated for every item individually, no cumulative monthly billing).
Interest Rate/Penalty Applicable
In case you are unable to repay your monthly dues on time, the card issuer would levy a penalty or an interest rate on the due amount. In case of UNI Card for example, the penalty applicable on the pending amount depends upon the amount due- there is a late fee slab that specifies the late fee applicable for the various ranges of the pending amount. While you must always make all the repayments on time, it is important that you are aware of the penalty and/or the interest rate applicable in case of default.
If you do not like an item you purchased and have to apply for a refund, the refund process is simple if the payment was made directly by paying the entire amount in a single installment- the entire amount is reverted to the source. For example, if the payment was made using a credit card, the credit limit utilized is restored and if the amount was paid with a debit card, the amount is credited back to the cardholder’s bank account. On the other hand, the refund process becomes complicated if the payment is to be completed in installments and the purchased item is to be returned when part of the total amount is paid and the rest is yet to be paid the future installments. The refund policy and procedure must be very clearly laid out by the card issuer in case such a situation arises and you as a cardholder must be aware of the same.
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If you keep the aforementioned pointers in mind, there is no real harm in subscribing to any of the BNPL Cards. That being said, traditional credit cards any day triumph over BNPL Cards in almost all aspects- whether reward rate or additional benefits like lounge access and insurance cover- provided you are willing to pay your entire monthly bill on time and at once. However, for someone who is financially punctual but is not eligible for a traditional credit card due to a low credit score or insufficient income, a BNPL Card can be a good option for making ticket purchases in installments.
Once again, a word of caution though, it is very important to be punctual when it comes to bill payments and to be aware of all the terms and conditions associated with the card including but not limited to the interest/late fee applicable in case of payment default and refund procedure.