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How 'buy now, pay later' affect your credit score? Key things to know

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How 'buy now, pay later' affect your credit score? Key things to know


While individuals can get BNPL approvals easily, failure to make payments on time can hurt credit score. Hence, just like other loans, borrowers need to ensure that timely repayments are done to maintain a healthy credit score.

How 'buy now, pay later' affect your credit score? Key things to know
Buy now, pay later (BNPL) has become an emerging online payment form over the last 2-3 years. While these plans offer instant, no-cost financing, it's important to understand what they mean for one’s credit score.
For starters, credit score is a key benchmark for understanding an individual's loan credibility for financial institutions in India. The credit score is a number measured between 300 and 900 and is calculated by the credit information companies in India.
Recently, BNPL is particularly finding favour among a section of people who do not have a strong credit history or qualify for a credit card and therefore find it difficult to avail traditional loans and credit cards at affordable rates.
This is because BNPL can also be offered to individuals' with low credit score, said Nitin Mathur, CEO at Tavaga Advisory Services while speaking to CNBC-TV18.
"Additionally, BNPL has caught the attention of both regulators and the credit industry and is expected to soon play a prominent role in the credit scores of consumers," he said.
BNPL is more focused towards the under financed section of the loan marketplace and hence could be a good way for one to start building their credit profile.
"Traditional loans can require a comparatively convoluted and more document heavy process with low chances of approval for someone without a credit score or low credit score, which is not in the case of BNPL," said Anshuman Narain, Vice-President at CashBean.
However, it's important to check here that before availing BNPL, one should understand the underlying risks of this option.
BNPL is after all a personal loan and will have to be repaid back. Depending on the type of plan individuals opt for, they may be charged some fees and interest if they fail to make the payments on time. Moreover, there is an inherent danger of getting carried away and spending too much through BNPL than they can afford, which can adversely impact credit score, Mathur told CNBC-TV18.
Thus, before availing loans through BNPL, individuals should make sure they are not putting credit score at risk.
The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.
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