Buy Now Pay Later vs Personal Loan vs Credit Card
What is Buy Now Pay Later (BNPL)?
Buy Now Pay Later (BNPL) is an instant micro-loan with a specific limit that allows cash-strapped or budget-conscious buyers to make small-ticket purchases and repay the borrowed amount later.
BNPL is an unsecured loan that must be repaid within the repayment cycle, usually ranging from 14 to 90 days, usually in interest-free EMIs depending on the loan terms.
BNPL credit providers use technology to understand the customers’ buying behaviour and repayment history. This helps them assess the borrower’s creditworthiness and disburse the loan digitally within minutes. BNPL credit providers increase or decrease the credit limit depending on the customer’s repayment capacity, buying behaviour and other factors.
What are the Benefits of BNPL?
The benefits of BNPL include:
- Instant access to credit
- Flexible repayment tenure
- Increases affordability without impacting the monthly budget
- Safe and secure digital process
- No cost EMI options
What’s the difference between Personal Loan and BNPL?
| BNPL | Personal Loan |
| A micro-loan solution to make eligible purchases | A big-ticket loan taken for emergency purposes, planned and unplanned expenses and purchasing big-ticket items |
| Borrowers can get BNPL credit of up to ₹1 Lakh depending on their creditworthiness | Borrowers can get personal loans of up to ₹25 Lakh or even more |
| Unsecured | Unsecured as well as secured |
| Repayment tenure ranges between 14 to 90 days. | Flexible repayment tenures between 2 months to 60 months |
| No cost EMI | EMIs contains principal plus interest components |
| Credit facility available on e-commerce, food-ordering, travel booking, online grocery and other service websites | Banks and other financial institutions offer this credit facility |
| Interest-free loan | Interest rate usually starts from 11% |
| Customers’ buying patterns and payment history are evaluated digitally to assess their creditworthiness | Customers’ credit score and repayment capacity are assessed to determine their creditworthiness |
| The lender pays the amount directly to the merchant on behalf of the customer | The loan amount is deposited in the customers’ bank account to be used as they please |
| Limited usage | No end-usage restrictions |
What’s the difference between BNPL and Credit Card?
| BNPL | Credit Card |
| Transparent | Carry hidden charges |
| Credit history is not required | Good credit history required |
| Provided by only a selected e-retailers and fintech companies. | Provided by most banks and financial institutions |
| Interest free loan | 50 days interest-free credit period |
| Fixed EMI to be paid by the due date | Need to pay the minimum amount due. The rest of the outstanding balance can be rolled over to the next month |
| No benefits such as reward points or cashbacks | Get cashback on purchases, reward points, etc. |
| Lower credit limit | Higher spending limits |
| Fees, interest charges, and annual charges are not applicable | Interest charges, and annual charges are applicable |
What Should You Choose? Buy Now Pay Later Vs Personal Loan Vs Credit Card
The choice should depend on your needs, eligibility and repayment capability. It is worth noting that if you are unable to make repayments on any of these three credit options, you are liable to pay a hefty penalty.
In summary, for small-size ticket expenses, BPNL and credit cards are suitable. However, if you need to make a choice between BNPL and a credit card, credit card is a better choice (if used wisely) due to the flexibility and benefits it offers. That said, if you need to purchase a small-ticket item, and you can easily repay the borrowed amount with your next month’s salary or within a few days without impacting your budget, then BNPL makes sense.
