Are We Headed For A BNPL Trap?

There’s a new genie in town. It’s called buy now, pay later, and it promises to deliver all you need through quick, very short-term, interest-free loans. But this genie comes with significant risks—hidden costs, new to credit population with no credit bureau records, lack of financial literacy in smaller towns, and regulatory gaps. BNPL’s value proposition is undeniable, but so is the spectre of consumers getting sucked into uncontrolled spending, and spiralling debt

- Teena Jain Kaushal And Anand Adhikari

IS YOUR ELECTRIC bill lying unpaid? Or perhaps your gas bill? Is your phone recharge due, or cable bill? Is it because you are running a little low on cash or want to spend elsewhere? Well, Freecharge, a Gurugram-based fintech, has you covered with an instant one-month, interest-free loan up to ₹10,000. Not just for utilities, but similar loans with flexible repayment schemes are also available at the checkout page of an Amazon or a Flipkart, whether you buy an iPhone or a perfume. Ride-hailing firm Ola lets you pay for all trips at once, every 15 days. And in case your holiday plan seems just out of your wallet’s reach, travel aggregator MakeMyTrip is ready to finance your tickets and hotel bookings. Just buy now and pay later.

BNPL, as the loan product is popularly called, is the latest financial pied piper, leading the millennial and Gen Z generations as well as borrowers in under-served and unbanked smaller towns into the world of credit. The lyrics accompanying the tune are just as alluring— ‘dream big, pay small’. And these first-time borrowers are following in hordes as they are, more often than not, denied loans in the traditional banking system since they lack a credit history.