Buy Now, Pay Later Loans May Soon Play Bigger Role In Credit Scores

Credit cards are no longer the preferred payment method for online shoppers. They now have Buy Now, Pay Later. This deferred credit option very stealthily crawled into the e-commerce lending space and is now dominating payments across all platforms; whether online or offline. 

Credit card companies had it coming for some time now. Their lengthy application process and stringent eligibility criteria was depriving millions of shoppers, who couldn’t get a credit card, from availing amazing deals and festival day super sales. What are Indians if not for their ‘jugaad’ in finding a solution for everything? Lenders came up with Buy Now Pay Later and credit card companies have lost a percentage of their market share. 

Let Us Understand How Buy Now Pay Later Works

Buy Now, Pay Later is a new credit option in which a customer is given a credit limit that may be used to purchase items from an online e-commerce website or at a physical store. The money can be repaid interest-free in 30 days, or customers can opt for EMIs of 3, 6, 9, or 12 months at a low rate. 

Buy Now Pay Later customers are also lured with additional discounts and cashbacks from e-commerce website partners on special sale days and festive super sale periods. Many borrowers are even offered the ‘No Cost EMIs epithet to make them purchase more. Now, even shopkeepers and retailers have started using this payment option to attract more sales and revenue.

Why Are More Consumers Opting to Buy Now and Pay Later? 

The primary reason for this lending option to become popular is its simple eligibility criteria and the instant application process. There are a number of Buy Now Pay Later service providers across the country and users can conveniently register for them online or through smartphone apps. Your PAN and bank account information must be provided. The finance institution then evaluates the information and generates your monthly credit limit, which is usually affiliated with the seller. 

This credit limit is usually determined by the average monthly balance in your bank account and your spending behavior. The credit limit may not be as large as that of a credit card, which generally allows customers to borrow up to five times their gross monthly wage.

The outstanding payment will be debited straight from your bank account since this account is linked to your bank account. This works in the same way as a credit card, however the user does not get a physical card.

This Is How ‘Buy Now, Pay Later’ Service Affects Your Credit Score

Not all Buy Now, Pay Later services will run a credit check when you first sign up. This means there’s no hard inquiry on your credit report and no impact on your credit score. It can also make it more appealing if you have a lower credit score.

A ‘no hard enquiry’ process may be appealing to many borrowers as it does not affect your credit score. However, most lenders would report you defaults or missed payments to the credit bureau which will have an adverse effect on your credit score ultimately. 

Experts opine that this lending option requires better regulations and firmer guidelines on how it is reported to the credit bureaus. While the authorities are deciding on that, it would greatly help you to make timely repayments to avoid a dent to your credit score. 

Buy Now Pay Later – Boon or bane?

People have turned to online buying for practically everything as the Corona outbreak threatens lives and safety. They may find some of the finest bargains on groceries, fresh vegetables and fruits, kitchen requirements and home improvements, fashion & lifestyle, mobiles and electronics through hundreds of e-commerce portals.

But when it is not possible for everyone to get a credit card, Buy Now Pay Later did allow millions to shop online and get a tiny relief of 30 days for the repayment. In that sense, Buy Now Pay Later definitely is a boon to many. 

But this additional credit, unchecked and untethered, put more money in the hands of reckless borrowers who only increased their overall debt burden. Isn’t that a bane to your financial health and the country’s economy?

Our verdict is, Buy Now Pay Later is a wonderful lending option that can increase the purchasing power of scores of shoppers who are either suffering with a bad credit score, or are not qualified enough to build a credit score. When used prudently, it can be a real boost to the economy. 

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