What happens when you miss your BNPL payment?

BNPL, or buy now, pay later, is a buzzword these days. Consider this: the existing BNPL market in India is worth $3-3.5 billion (about Rs 22,500-Rs 26,250 crore) and is expected to grow to $45-50 billion (about Rs 3.37-Rs 3.75 lakh crore) by 2026, according to consultancy firm RedSeer. 

The industry is expected to grow on the back on millennials and self-employed people, who generally do not have any access to formal credit history. Given the huge untapped market, the BNPL players are eyeing this immense opportunity, particularly when India's credit card population is only limited to 67 million, while banks focus only on top 100 million people. 

There are two types of digital BNPL players in the market -- payment finance and transaction finance. In case of BNPL players like LazyPay and Simpl, you don't have to go through the lengthy process of adding credit cards or money to wallet or waiting for a one-time password (OTP). You can just accumulate all your bills and pay only one bill after 15 days. Transaction finance, on the other hand, enables large-ticket purchases in small EMIs.  

"As an evolving payment trend in India, buy now, pay later mainly comes in two avatars to serve the two distinct purposes of convenience and affordability. Deferred payment is a low ticket-sized solution used by consumers for convenience so they can enjoy experiences and avoid the hassles of upfront payment with every transaction. This is an interest-free payment option if paid within the repayment cycle of 15 days, as followed by Lazypay. On the other hand, BNPL for affordability is a large-ticket sized solution that is used by consumers looking to buy desired products or services without any delay and pay later in small EMIs. The EMIs range from 3-12 months, with zero to minimal interest," says Anup Agrawal, Business Head at LazyPay.

Also Read: Things to consider before availing loans under BNPL scheme

The next question that arises is what happens if you default on payment and fail to pay on time. Well, currently there is no standard practice followed by BNPL players, and hence the charging structure varies from company to company. It is important to note the several risks that come from hidden costs, lack of disclosures and transparency, and a new-to-credit population with no credit history. 

Here is a list of some of the general charges you should know before opting for BNPL facility:

Processing costs: Digital BNPL players generally charge anything between Rs 0-99 for loans.

Late payment charges: Borrowers need to pay late payment charges until they clear their dues. For example, Flipkart's Pay Later charges late payment charges ranging from Rs 60-Rs 600 for bill amount varying from Rs 100 to Rs 5,000 and above. Similarly, in case of LazyPay, users are charged a penalty fee of Rs 15 every day. 

Interest rates: Here it is important to understand that different companies have different charging structure in case of late payment. While some may be charging just late payment charges, others may be charging interest ranging from 2-3 per cent per month. For example, payment companies like Paytm charge the customers 3 per cent interest on outstanding amount for extension of due date by a month. 

Other charges: BNPL players may also impose a prepayment charge if you plan to close the loan before the scheduled period. For example, pre-closure of HDFC Bank's FlexiPay service attracts a charge of 4 per cent on the balance principal outstanding plus GST at 18 per cent.

Also Read: Are we headed for a BNPL trap?