From payment history to social media, behave to buy better now pay later offers

From Payment History to Social Media Behave to Buy Better Now Pay Later Offers | Photo credit: iStock Images

The Buy Now Pay Later (BNPL) segment of consumer loans makes good use of the YOLO “you only live once” lifestyle choices of millions of millennials around the world. From New Delhi to New York, every major lender and worthy fintech platforms are trying to cash in on subsequent payment programs.

Late payment programs are not new to India, as they were first launched by loaning giant Bajaj Finserv, the parent company of Bajaj Finance, to India in 2007 via offline mode in retail stores. household appliances and electronics. The company has helped middle-class Indians buy more home appliances by providing credit and repayment options with relative ease.

Only 60-70% of millions of Indians have access to credit cards and this is where BNPL lenders come in. Besides the big traditional lenders such as HDFC, Bajaj Finserv, ICICI Bank, among others, there are at least a dozen fintech (ish) players like Amazon, Flipkart, MobiKwik and Paytm that offer short term financing allowing people to ‘buy stuff and pay it back at a later date.

According to Paytail co-founder Vikas Garg, the BNPL payment method is expected to grow at a CAGR of 24.2% from 2021 to 2028, bringing the gross value of goods sold under this mode to $ 52.8 billion in India. by then.

BNPL increases conversion rates and average order values ​​(AOVs) for traders by reducing buyers’ buying hesitations, but like any other loan, it is always the customer’s responsibility to make repayments promptly to maintain a good rating. credit since most BNPL providers report repayments to the credit bureaus.

Looking at brasstacks from a consumer perspective, how is it different from credit cards and what are things to watch out for before signing on the proverbial dotted line?

What is BNPL and how is it different from credit cards?

Pay Later programs are small loans typically ranging from a few thousand to Rs 1 lakh in some cases, which should usually be repaid in a matter of months or even days.

In most cases, BNPL loans do not bear interest, however, repayment behavior will have an impact on what a customer can borrow.

Compared to credit cards which have an annual fee entry, normally BNPY lenders do not have such a fee structure, which makes it easier to obtain and obtain loans. However, the EMI must be paid in the interest free window, otherwise the lender will apply a late payment fee.

“BNPL generally follows a transparent and low cost pricing model. Credit cards are the most expensive form of credit. Interest rates on missed payments can go up to 48%, while BNPL companies like Paytail charge around half, ”Garg added.

While BNPL’s offering helps borrowers gain the financial freedom to purchase the products they want, it is important for the borrower not to overdo it in terms of the overall obligation relative to their cash flow.

How do businesses decide who to lend to

When lending to new customers, businesses track a multitude of factors such as income profile, payment behavior, payment history, and even digital social media footprints to determine a consumer’s creditworthiness. .

These digital fingerprints thus predict the user’s creditworthiness. Borrowers with low credit scores have access to BNPL, but at a higher cost. While many traditional lenders may reject borrowers who have a low credit rating, the chances of these borrowers obtaining credit through BNPL are higher, ”Garg added.

What are the missed payment fees

Like any other default, missed BNPL payments have repercussions on your credit rating. The borrower should ensure that their accounts are funded for an IME due at least one day in advance.

The EMI rebound incurs fees both from the BNPL lender in the form of criminal charges ranging from Rs 250 to Rs 500 plus taxes per EMI statement and also from the bank where the borrower holds his account in rebound fees of up to Rs 500 plus taxes. These criminal charges are fixed regardless of the amount of the EMI.

What you need without for

First, for a consumer, protection is paramount. Therefore, when downloading apps, make sure that the app is from an approved lender. If a company does not have an RBI license, it should clearly indicate under which license it is offering the product. Before downloading, check who publishes the app, check the company’s website, and make sure it is an established and registered company in India, says Anil Pinapala of Vivifi India Finance.

Second, if the company is licensed, check to see if it clearly mentions this on its website, as well as the RBI guidelines it follows, including the grievance mechanism and the interest rate policy. Also, never download apps that ask for contacts as they could be used for coercion.

Third, most BNPL options charge no fees or interest, but you need to understand (What is the actual cost of the loan. Even though companies say zero percent, they are supposed to report their IRR – Internal rate of return, so Consumers, for their own protection, should ensure that the company or app discloses all of this.

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