How BNPL loans compare to credit cards and personal loans



Festive shopping often means festive borrowing. When you borrow, you need to know your options in order to minimize borrowing costs and maximize benefits. Credit cards and personal loans (PL) have been around for some time now. Now there is a relatively new option: Buy Now Pay Later (BNPL) loans. These are becoming popular among young credit consumers as well as experienced consumers who need help managing their payments after financial stress from Covid. Let’s take a closer look at this option and how it compares as a fundraising tool for party shopping.

What it is

As the name suggests, a BNPL loan can be used to pay for your groceries. Contributions can be refunded within days at no cost. BNPLs can be obtained from fintech companies, lending start-ups, and some banks. Think of a BNPL as a tab you have at your grocer that allows you to make purchases on credit that you have to pay at the end of the month in one go for which you can even get a small discount. BNPL’s features vary from lender to lender, but overall they all offer the same convenience – shop now and pay after a few days.

BNPLs are small loans – in many cases as small as 2,000 to 5,000. You can sign up for it with your preferred BNPL provider, e-commerce platform, or bank. In many cases, credit scores are not a barrier to accessing BNPL. Once used, you can use your BNPL balance at a partner merchant. BNPLs and PLs are easy to obtain. You can apply online and get one quickly. Pre-approved offers can be used almost instantly. Credit cards too. But the similarities between the three end here.

Credit cards can be used offline or online, and even in cash, nationally or internationally. PLs are credited to your bank account to be used as you see fit, even for cash withdrawals. Therefore, these two options have universality. So far, you can only use a BNPL with traders that the financier has partnered with nationally. For example, you can use a BNPL as a payment option on a food delivery app. BNPLs also do not allow cash withdrawals. That said, loan providers and merchants are quickly teaming up to make BNPLs more widely usable. But for more seasoned borrowers, credit cards can meet a wider range of financing needs.

Quantum, borrowing costs

BNPLs start at a few thousand rupees and go as high as ₹ 1 lakh in a few cases. Hence, they are good for small ticket purchases ranging from groceries, food deliveries, and cab rides to small electronics. Some BNPL providers will increase your spending limit based on your credit behavior. Timely refunds help. On the flip side, credit cards have spending limits as high as your income and credit profile will allow. PLs normally start at around 50,000 and go up to 40 lakh in a few cases. BNPLs are a great introduction to credit for first-time consumers. But people who are eligible for credit cards can go directly to them. BNPLs are suitable for small races.

This is an area where BNPLs seem the most attractive. They have almost negligible registration fees, no processing fees or even annual renewal fees. In most cases, there is no interest in contributions, although interest generally applies to EMI plans. Late payments result in penalties. Credit cards can have membership or annual fees, although many cards waive them for preferred customers or customers who reach spending milestones.

However, card debt doesn’t come cheap, with annualized interest rates sometimes exceeding 40%. Late penalties will be extra. PLs usually have a handling fee, which can sometimes be waived or reduced. Interest rates start at around 7.50 percent, making them cheaper than credit cards for large loans.


BNPLs are excellent for low-cost, low-cost, very short-term transactions. Typical BNPL has to be repaid between 15 days and 90 days, although larger BNPL loans can be for up to a year. A credit card is fine for larger purchases, although the high interest rate means that you should ideally pay your card dues in the short term – ideally no more than a few months. But if you need to borrow big and need a much longer term to pay the dues, you should take a PL which can have a term of between one and five years.

BNPLs, like credit cards, offer revolving credits. You can spend from your limit, replenish it by refund, and use it over and over again. PLs are fixed lines of credit. Despite the differences, all three options are readily available to eligible consumers. Where credit is readily available, care should be taken with repayment. Late or missed payments will ruin your credit score in all three options. Therefore, only borrow what you need, always pay your dues back in full, and for best results with your party shopping, always stay on a budget.

The author is CEO,

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