Limit instalments to 10-15% of income, restrict usage to two plans

Those with multiple loans, irregular earnings, or poor repayment habits should avoid it

- SANJEEV SINHA

This festive season, India witnessed a sharp uptick in demand for quick credit, with digital lenders reporting up to a 50 per cent rise in festive loan applications. Interestingly, even higher-quality borrowers are tapping into short-term credit options for convenience and flexibility. Even as demand gathers pace, borrowers need to ask if 'buy now, pay later' (BNPL) is right for them.

How BNPL works

BNPL is gaining popularity for purchases like mobiles, gadgets, and household items. It lets customers buy instantly and pay in instalments over a few weeks or months.

"At checkout — online or offline — the customer selects BNPL, where a fintech platform (or a partner bank) pays the merchant upfront, and the buyer repays in scheduled instalments, often interest-free initially. Spending limits are set based on the user's creditworthiness, transaction history, and spending behaviour," says Raoul Kapoor, co-chief executive officer (co-CEO), Andromeda Sales and Distribution.

Pros and cons

BNPL services offer quick, hassle-free small loans for consumer purchases with minimal documentation. These short-term loans are approved within minutes. Buyers are able to split payments into small instalments or defer them—helping manage spending better, especially during festive sales and discounts.

"For disciplined users, it’s a handy cash-flow tool to manage big or unexpected expenses. It helps younger customers build short-term purchasing power. It offers interest-free repayment windows, simple digital onboarding, and transparent repayment schedules. BNPL thus enhances affordability and prevents the need for costlier borrowing," says Kapoor.