Similar to a credit card, a Buy now, pay later (BNPL) cards allow consumers to make purchases and make payments over time in multiple instalments. Both the options also offer interest free repayment window. But, what is the need for two different products serving the same purpose? There are significant differences in the fee and reward structures of the two financing options.
BNPL The cards offered by Uni and Slice let customers split the outstanding bill into three equal interest-free installments over three months. Uni allows its users to pay a minimum amount at the end of the month and carry forward the balance. Nitin Gupta, Founder and CEO, Uni said, “We charge a carry forward charge of 3-4% on the balance from that particular billing cycle, when the minimum due is paid.” Credit cards, on the other hand, charge interest on the entire remaining balance amount when the minimum due amount is paid. Slice does not offer minimum payable payment option.
In Pay Later cards, if you are unable to pay the full amount by the end of three months, you can convert the payable amount into Equated Monthly Installments (EMIs) for a longer period. Gupta said they do not charge interest per se, but do charge late fees for default. “To clarify, the vested interest can range from 16%-40% p.a. per annum depending on the amount payable and repayment behavior of the user,” he added. The interest rate charged by credit cards on outstanding balances is among the highest across loan categories at 36-42% p.a.
As for rewards, most credit cards offer rewards on every transaction that keeps on accumulating and can be redeemed in the form of air miles, gift vouchers, hotel bookings, etc. after a certain number of points have been accumulated. Uni offers a flat 1% cashback if the total amount due is paid by the end of the first month. Slice’s cashback scheme works in the form of ‘Paisa’. With each transaction, the user gets an amount equal to the money spent. Accumulated funds can be converted into cashback, with conversion rates of 1%, 1.5% and 2%, balances up to 3 lakhs, between 3 lakhs and 5 lakhs respectively and funds above 5 lakhs. For example, if a user has 1.5 lakh slices of money, they will convert it into 1,500 cashback (1% of 1.5 lakh).
Among other small differences, credit cards can be used for transactions when you are abroad, which Paylater cards do not allow. However, Paylater cards can be used to make certain international transactions from India. Also, BNPL cards offer fewer credit lines for first time users 2,000, which increases overtime according to usage and payment behavior, while the credit limit on credit cards usually starts at Rs. 20,000
Don’t miss a story! Stay connected and informed with Mint.
download
Our App Now!!