Last week, Slice, a Buy Now Pay Later (BNPL) Player introduced ‘real time’ term loan to replace its earlier offering of line of credit. The change is a result of the banking regulator barring fintech companies from offering revolving credit lines on prepaid cards and wallets.
Prior to this, customers would be assigned a credit line At the time of registration with the platform and therefore for making payments can be drawn from a pre-approved credit line. Now, customers will immediately sign up for a new loan (called a term loan) every time they make a payment. For example, if you choose Slice during the payment checkout for a transaction on an online food delivery platform 600, you have to borrow 600 from an NBFC partner of Slice. Once the request is approved by the NBFC partner, he will transfer the amount to the Slice Card (issued in partnership with SBM Bank). Axio (formerly CapitalFloat) also follows a similar lending methodology.
A credit line is classified as a loan in the books of account. Therefore, when a credit line is assigned to a consumer, it appears as an active loan at his or her credit bureaus, regardless of whether the consumer uses it or not.
Under the term loan lending model, only the amount actually borrowed by the consumer will be reflected in their credit bureaus. In this regard, the term-loan lending model is a step-up from the earlier credit line product. The repayment structure will remain the same wherein customers will get a predetermined interest free window to pay the entire amount, after which the interest will start rolling. Using this facility regularly for payments can cause trouble for your credit score as lenders may see you as a risky borrower.
Adil Shetty, CEO, BankBazaar.com said, “Any loan you take from a regulated bank or NBFC will have a credit check attached to it. It is up to the lender to understand your financial habits and stability. The records of all the loans open as well as closed in the last 3-5 years will be detailed in the credit report, and this is one of the primary checks done by any lender before sanctioning a loan. Every tough question on your credit score lowers your score by a few points.”
In a message to customers, Slice said that the change does not negatively impact their credit scores.
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