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Personal Loan, Credit card or BNPL- Which one to Choose and Why?

Published on Jan 19, 2022Updated on Jan 25, 2024

Personal Loan, Credit card or BNPL- Which one to Choose and Why?

BNPL or buy now pay later credit services are the latest trend, especially among millennials and GenZ. It allows the cash-strapped buyer to buy something and pay for the item at a later date in easy installments. 

Given the rise in popularity of this form of credit service, many fintech startups, e-commerce giants, and a few leading NBFCs have started offering BNPL credit services. However, before subscribing to BNPL services, you should do the necessary due diligence, read the fine prints, and understand the product well. This blog focuses on demystifying BNPL for you and how it stands compared to other unsecured short-term loan products. 

What is BNPL?

BNPL is a form of micro-loan that is offered to customers instantly to make payments for small-ticket purchases and repay the amount at a later date. 

The loans are unsecured and have to be paid within the repayment cycle ranging between 14 to 90 days, in a series of interest-free EMIs depending on the terms of the loan. 

To assess the creditworthiness of the borrower/customer, BNPL credit service providers take the help of technology to understand their buying behaviour and payment history. Usually, the entire process to avail of a BNPL credit service is completed digitally and the amount is disbursed within minutes. Depending on the buying behaviour, repayment capability, and other factors, BNPL credit service providers increase or decrease the credit limit for users. 

Benefits of BNPL Services

  • Increases affordability
  • Provides instant access to credit
  • No cost EMI options
  • Safe and secure
  • Can choose repayment tenure
Must Read: 5 Reasons to Choose Personal Loan Over Peer-to-Peer Lending

BNPL vs Personal Loans

Personal loans and BNPL are very different products and serve different purposes. As mentioned, BNPL is a micro-credit solution that provides financing for eligible purchases and schedules payments at later dates. Based on the information provided and the creditworthiness of the borrower, BNPL credit services providers can finance eligible purchases of up to Rs 1 lakh.

Whereas, personal loans are big-ticket loan amounts where borrowers can avail loans up to INR 25 lakhs* and repay the loan choosing flexible repayment tenures between 12 to  60 months. Using the personal loan EMI calculator, one can plan their EMIs and loan tenure as per the repayment capability. 

It can be taken for meeting any type of emergency expenses, planned expenses related to child’s education, wedding, home renovation, long vacation, etc. There is no end-usage restriction of the loan amount on the borrower. 

Compared to BNPL, lenders of personal loans carry out extensive due diligence of the borrower's creditworthiness before loan disbursal and are directly credited to the borrower's bank account. Based on the credit score and repayment capability, personal loan interest rates are determined. 

In BNPL, the lender directly pays the merchant on behalf of the customer and collects the amount from the customer in interest-free EMIs. On the other hand, after an online personal loan is sanctioned, the borrower can get the required funds in his/her bank account directly. 

BNPL vs Credit Cards

Although both have the same functionality, credit cards score higher in terms of acceptability and benefits to users. 

As compared to BNPL, which are offered on only select products, a credit card can be used in making any kind of purchase without any restrictions. Also with credit cards, there are multiple benefits, including:

  • 50 days interest-free credit period
  • Rewards on every purchase made
  • Cashback and discounts on eligible purchases
  • Higher spending limit

In terms of fees and annual charges, interest charges are not levied on BNPL. The user needs to pay the non-cumulative fees as a penalty in case of late payment. Whereas in credit cards, users need to pay annual charges and interest charges are levied, if the due amount is rolled over to the next billing cycle. 

Must Read: 7 Situations in Which a Personal Loan Can Be Your Saviour

BNPL Vs Credit Cards Vs Personal Loans: Which One to Choose?

BNPL has now emerged as one of the common ways of financing purchases, in addition to personal loans and credit cards. However, one should choose between them depending on the needs and eligibility. 

For instance, online personal loans are suitable for meeting big and multi-fold expenses and offer users the flexibility to use the loan amount as per requirements. One can use the personal loan eligibility calculator to know their eligibility and the amount that can be availed as a loan. 

On the other hand, BNPL and credit cards are suitable for meeting small-size ticket expenses. However, in the choice between credit cards or BNPL, credit cards score higher because of greater benefits and can be used for making any type of digital transaction through PoS or online. BNPL is offered in partnership with merchants and the credit facilities are usually offered after factoring in all the expenses and interest on the loan amount. 

In terms of accessibility, BNPL scores ahead compared to both, personal loans and credit cards, as in most cases, BNPL is offered with minimum documentation and is easier to sign-up for. Therefore, making it a highly suitable option for users ineligible for credit cards or personal loans because of stringent eligibility criteria.

In summary, if you urgently need a small amount of cash which you can easily repay with your next month’s salary or within a couple of months at the most, a BNPL may be a good choice. On the other hand, if you need a large amount and need time to repay the amount (which is longer than a year), it is much better to go for a personal loan.

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*Terms and Conditions apply. Loans are disbursed at the discretion of SMFG India Credit.