Buy Now, Pain Later

On paper, Buy Now Pay Later (BNPL) apps sound harmless, even helpful. Purchase today, split the cost, pay over time. No heavy paperwork, no intimidating bank visits, no immediate financial pain. For a generation navigating unstable incomes, rising aspirations, and a deeply digital lifestyle, BNPL feels like a financial shortcut perfectly designed for the moment. But beneath the clean interfaces and friendly phrases like “no-cost EMI” and “pay later” a quieter crisis is unfolding, one where young borrowers are defaulting early in their earning careers, damaging credit histories before they fully understand what credit even means.

Credit Charge Woes

From a fintech perspective, BNPL is essentially short-term unsecured credit. Limits are decided algorithmically, based on perceived risk. For smaller purchases, platforms rely heavily on credit bureau data, past repayments, credit scores, and existing loans.

For higher limits, some apps assess bank statements to estimate income stability. In many cases, users are given pre-approved limits that can be reused repeatedly. The problem is not that people don’t know it’s credit; the problem is that it doesn’t feel like credit. The design removes friction. Spending feels light, but the liability is real.

Unlike traditional credit cards, which require income proof, documentation, and a formal approval process, BNPL lowers the entry barrier dramatically. This makes it particularly attractive to first-time borrowers and those without an existing credit history, often referred to as 0-1 customers.

“Many BNPL startups are not just offering deferred payments,” says Saurabh Khubchandani, Investment Banker and Head of FinTech Coverage at Unaprime, “They also provide additional incentives, cashback, coins, or coupons, which can be redeemed against shopping vouchers, or in some cases converted into cash at a lower value.” If a user sees an added advantage compared to paying via UPI, debit card, or even a credit card, adoption becomes obvious. He says, “That incentive layer plays a big role in increasing conversion for brands.”

Money Matters

SS Shinde, a Chartered Accountant, points out that nothing comes for free. “The default rates in BNPL are very high. BNPL pushes consumer demand, boosts retail and e-commerce sales. But it also drives consumers to spend beyond their financial limits.” Shinde adds, “These new payment modes (BNPL) are turning into an EMI nightmare for many youngsters.”

According to the Head of Credit Cards and UPI Credit Lines at a major Indian bank, BNPL should not be seen as an alternative to credit cards but as a subset of consumer credit. “Nothing is truly no-cost,” he explains. “In no-cost EMI models, the interest is not waived off. It is shifted. The manufacturer or brand subsidises it to encourage upgrades and higher spending. The risk, however, still sits with the lender.”

He explains that a product priced at Rs 1 lakh might suddenly become affordable at Rs 1.5 lakh when split into EMIs. “Consumers upgrade because the pain of payment is postponed. Psychologically, the purchase feels justified,” he says.

One of the most dangerous misconceptions surrounding BNPL is the belief that defaults don’t affect credit scores. Rubbishing these claims, Shinde warns, “A default payment remains like a black spot in your credit score history. And banks take note of it.”

Post-pandemic, unsecured lending surged as incomes stagnated, but digital consumption exploded. Young professionals upgraded phones, laptops, and lifestyles using BNPL, often stacking multiple loans simultaneously.

From the startup side, this aggressive growth has come at a steep cost. “These companies are burning heavily right now,” says Khubchandani. Rewards, tech development, team costs, everything adds up. “India’s younger population is slowly moving towards a more credit-driven consumption culture, closer to the US, where credit penetration is significantly higher. BNPL becomes an entry point into that ecosystem.”

He adds that banks and NBFCs, the wholesale lenders behind most BNPL platforms, also benefit. “They get the ability to expand their loan books. From a macro perspective, that supports overall economic activity.”

Young Defaulters

A 21-year-old college student from Delhi admits she did not think much before activating multiple pay-later options.

She says, “Swiggy, Zomato, shopping apps, everywhere.

Rs 500 here, Rs 1,200 there.” She missed one payment cycle and found out that her credit record was ‘bad.’

While regulated BNPL platforms follow RBI-mandated recovery norms, unregulated and illegal lending apps linked to foreign entities have used far more aggressive tactics. A senior banker recounts instances involving Chinese-origin apps that operated outside the regulatory ecosystem. “They charged interest upwards of 36%. More importantly, their recovery methods were coercive harassment, threats, and public shaming.” Though many such apps have since been shut down, their legacy lingers online.

Bankers and financial experts agree that BNPL is not inherently unethical, but they have serious concerns about it. “If users clearly saw that missing a single BNPL payment could trigger APRs of 30% to 36%, sometimes calculated from the credit date and not the statement date, many would think twice before checking out,” Khubchandani says.

These charges are disclosed, but they are buried deep inside FAQs and terms and conditions. People hardly read them. There is a clear gap between what users should be informed about and what they actually understand. Some apps now send reminders before EMIs are due, which helps, but that’s not the same as financial education.

Long-Term Costs

A damaged credit score can take years to recover. Experts note that even after defaults are cleared, improvement typically takes 36 months of disciplined repayment.

Written-off cases can remain visible for nearly a decade. “No bank wants to give a loan to a defaulter,” quips Shinde. His firm advice to youngsters is to stay away from the BNPL trend. “It is always safer to spend money wisely, either in cash or via credit card.”

With BNPL not going away, Khubchandani says, “It’s not a bad product. But when spending begins before earning stabilises, the burden of EMIs arrives early.” For a generation just stepping into financial independence, the real cost of pay later may not be the interest, but the future it quietly mortgages.

Hey Wise Spender!

To avoid BNPL pitfalls, here are some tips:

· Avoid multiple loans: Do not take multiple BNPL loans at once

· Read the fine print: Understand all hidden fees or interest charges for delayed or missed payments.

· Create a budget and buy only necessary and affordable things. No impulse buys.

· 72-hour rule: Wait for 72 hours before buying an item. More often, the urge to spend passes away.

· Do I need this? Ask this priceless question to yourself before buying anything.

· Pay in full: Use BNPL only if the full purchase amount is available.