What is Buy Now Pay Later (BNPL)?

Buy Now Pay Later (BNPL) is a short-term form of credit that lets you make an eligible purchase immediately and pay for it later, either in one payment or through a series of instalments. Depending on the provider and the specific plan, BNPL may offer interest-free or low-cost instalments, although fees or other charges may apply.

BNPL is generally designed for smaller, short-term purchases rather than large expenses that require a longer repayment period.

Key Features of BNPL:

• Available at checkout: BNPL may be offered when shopping online or using eligible travel, food delivery and other digital platforms.

• Pay later: The BNPL provider typically settles the purchase with the merchant, while you repay the provider according to the agreed plan.

• May be interest-free: Some BNPL plans offer interest-free repayment when you meet the agreed payment terms, while others may charge interest or fees.

• Pre-approved spending limit: Your available BNPL limit may depend on factors such as the provider's eligibility criteria, credit profile and repayment history.

How Does BNPL Work?

When you choose BNPL at checkout, the provider facilitates the payment for your eligible purchase. You then repay the amount according to the BNPL plan, which may involve a single payment or multiple instalments.

For example, if you purchase a ₹12,000 product using a BNPL facility with a 3-month interest-free repayment plan, you would repay approximately ₹4,000 per month, provided all instalments are paid on time. If the plan includes a processing fee or interest charge, the total amount payable would be higher.

Before using BNPL, check the repayment schedule, total amount payable, interest or fees and consequences of missed payments.

What Is a Credit Card?

A credit card is a revolving credit facility that allows you to make purchases or other eligible transactions using a pre-approved credit limit. Instead of paying directly from your bank account, you borrow from the card issuer and repay the amount later.

Unlike BNPL, which is generally linked to a specific purchase or repayment plan, a credit card can be used repeatedly as you repay the outstanding balance, provided you remain within your available credit limit.

Key Features of a Credit Card:

Revolving credit: Reuse your available credit as you repay the outstanding balance.

• Billing cycle: Purchases are grouped into billing cycles, with a payment due date for each statement.

• Interest-free period: You may avoid interest on eligible purchases if you pay the full outstanding balance by the due date, subject to the card's terms.

• Rewards and benefits: Some credit cards offer reward points, cashback, discounts or other benefits.

• Fees and charges: Annual fees, interest charges, late payment charges and other fees may apply depending on the card and how you use it.

How Does a Credit Card Work?

When a card issuer approves your application, it assigns you a credit limit based on factors such as your income, credit history and other eligibility criteria. You can use the card for eligible purchases up to your available credit limit.

For example, if your credit card has a ₹1,00,000 limit and you spend ₹20,000, your available credit generally falls to ₹80,000. As you repay the outstanding balance, your available credit is restored, subject to the card's terms.

If you pay the full outstanding balance by the due date, you may avoid interest on eligible purchases, subject to the card's terms. If you carry an outstanding balance beyond the applicable interest-free period, interest and other charges may apply. Carrying a credit card balance can therefore make borrowing significantly more expensive over time.

Before using a credit card, check the interest rate, annual fees, late payment charges, interest-free period and other applicable charges.

What Is a Personal Loan?

A personal loan is a type of borrowing that allows you to receive a fixed amount of money upfront and repay it through regular Equated Monthly Instalments (EMIs) over an agreed tenure. Personal loans can be used for a range of purposes, such as home renovation, medical expenses, weddings, travel, education or other planned and unplanned expenses, subject to the lender's terms.

Unlike BNPL or a credit card, which are generally designed for purchases or revolving access to credit, a personal loan provides a predetermined loan amount that you repay according to a fixed repayment schedule.

Key Features of a Personal Loan:

Fixed loan amount: The approved amount is disbursed upfront.

• Regular EMIs: Repay the loan through monthly instalments over an agreed tenure.

• Usually unsecured: Most personal loans do not require collateral, although secured options may also be available.

• Flexible end use: Personal loans generally do not have restrictions on how you use the funds, subject to the lender's terms.

• Interest and charges: Interest is calculated according to the loan's terms, with applicable fees or charges potentially increasing the overall cost of borrowing.

How Does a Personal Loan Work?

When you apply for a personal loan, the lender evaluates factors such as your income, credit history, existing financial commitments and repayment capacity. If approved, the lender disburses the agreed loan amount, which you then repay through regular EMIs over the selected tenure.

Each EMI generally consists of a portion of the principal and applicable interest. Once all scheduled repayments are completed, the loan is fully repaid.

For example, if you borrow ₹2,00,000 for three years at 12% per annum, your monthly EMI would be approximately ₹6,643. You would pay around ₹39,144 in total interest over the tenure, making the total repayment approximately ₹2,39,144, excluding any applicable fees or charges. The exact EMI and total repayment will vary based on the interest rate, tenure and other terms offered by the lender.

You can use an EMI calculator to estimate your monthly repayment and compare different loan amounts, interest rates and tenures before applying.

BNPL vs Personal Loan vs Credit Card 

When Should You Choose BNPL?

Choose Buy Now Pay Later (BNPL) when you need to make a smaller purchase and want to spread the cost over a short repayment period. It tends to work best when the purchase is planned, the repayment schedule fits your budget and the total cost is reasonable.

BNPL May Be a Good Option When:

• You're making a small or medium-sized purchase: BNPL can work well for purchases you can realistically repay within the plan's short repayment window. For example, you could split a ₹6,000 purchase into three instalments of ₹2,000 rather than paying the full amount upfront.

• You want to spread the cost over a short period: If you would rather not pay the full amount at checkout, BNPL may allow you to divide the cost into a few payments or instalments.

• The plan is interest-free or low-cost: Terms vary by provider, so check whether the specific plan charges interest, processing fees or other costs before committing.

• You're confident you can repay on time: Missing BNPL payments may result in late fees and could affect your relationship with the provider or your credit profile, depending on the provider and how the facility is reported.

• You need short-term financing for a specific purchase: BNPL is generally linked to eligible purchases rather than providing the same ongoing access to credit as a credit card.

Avoid taking on multiple BNPL plans at once, as the combined repayments can put pressure on your monthly budget. If you need ongoing access to credit for regular spending, a credit card may be more suitable. If you need a larger amount for a planned expense and prefer a longer, structured repayment period, a personal loan may be a better fit.

When Should You Choose a Personal Loan?

Choose a personal loan when you need a larger, fixed amount of money for a planned or unexpected expense and prefer to repay it through predictable monthly EMIs over an agreed tenure.

A Personal Loan May Be Suitable When:

• You need a fixed lump sum upfront: Personal loans provide a predetermined loan amount that is disbursed upfront, subject to your eligibility and the lender's terms.

• You have a major planned or unexpected expense: Costs such as home renovation, medical treatment, education or a wedding may require a larger amount upfront rather than short-term purchase financing.

• You prefer predictable monthly EMIs: Knowing your scheduled EMI can make it easier to plan your monthly budget over the loan tenure.

• You need a longer repayment period: Personal loan tenures can range from a few months to several years, depending on the lender and loan terms.

• You want a structured, one-time repayment schedule: Unlike a credit card, which provides revolving access to credit, a personal loan has a defined loan amount and repayment tenure once it is disbursed.

Before applying, compare the interest rate, processing fees, tenure, EMI and total repayment amount across lenders. If your borrowing need is smaller and short-term, BNPL may be more suitable. A credit card may be preferable if you need ongoing access to revolving credit and can manage your repayments responsibly.

When Should You Choose a Credit Card?

Choose a credit card when you need flexible access to revolving credit for regular spending and can manage your repayments responsibly.

A Credit Card May Be Suitable When:

• You have regular or recurring expenses: A credit card can be convenient for everyday spending such as groceries, bills and subscriptions, provided you can manage the repayments within your budget.

• You want access to a revolving credit limit: Unlike a personal loan, a credit card allows you to spend, repay and access available credit again without applying for a new loan each time.

• You can pay the full outstanding balance by the due date: Paying the full balance can help you avoid interest on eligible purchases, subject to the card's terms.

• You want to earn rewards, cashback or other benefits: Some credit cards offer reward points, cashback, discounts or other benefits based on how you use the card.

• You need ongoing access to credit: A credit card can provide continued access to your available credit as you repay what you owe, rather than requiring a separate application for each purchase.

If you regularly carry an outstanding balance, check the card's interest rate, annual fees and other charges, as the cost of borrowing can increase significantly. If you need a larger amount for a planned expense and prefer a fixed repayment schedule, a personal loan may be more suitable. If you're financing a single smaller purchase over a short period, BNPL may be a better fit.

Conclusion

BNPL, personal loans and credit cards serve different borrowing needs, so the right option depends on how much you need, what you are using the money for and how you plan to repay it.

BNPL may be suitable for smaller purchases that you can repay over a short period. A personal loan may be better when you need a fixed amount for a larger expense and prefer predictable EMIs over an agreed tenure. A credit card can work well for regular spending when you want flexible access to revolving credit and can pay your outstanding balance responsibly.

Before choosing any form of credit, compare the interest rate, fees, repayment period, monthly payment and total amount payable. Most importantly, choose an option that fits your budget and repayment capacity rather than focusing only on how quickly you can access the funds.