How BNPL Systems Can Hit Your Credit Score And Lead You Into A Debt Trap


The BNPL (buy now pay later) borrower, who goes by the Twitter account @adityaagrw, recently pointed out that he was shocked to find a loan of Rs 30,000 against his name on his credit report. He had never requested such a loan and had not been approached by any bank representative for it.

He later discovered that his service provider BNPL had taken out a consumer loan on his behalf and alleged that he had done so without informing him or obtaining his consent. This loan, of course, had an impact on his credit rating, which plays a major role if you want to borrow a loan in the future.

He recently highlighted the issue in a tweet. Some other users have had similar experiences. (embedded tweets by @adityaagrw and @RPB2606).

It turns out BNPL entities take consent from the borrower. The problem, however, is that few users realize that they are giving their consent because it is buried in the list of terms and conditions or frequently asked questions (FAQs) published by BNPL providers. Unfortunately, not everyone reads them fully and some do not fully understand them.

Why do consumer loans appear in credit scores?

Most BNPL services clearly state in their FAQ or Terms and Conditions section that they provide the service in partnership with a bank or non-bank financial company (NBFC). If you read the terms carefully, you will find that when you use the BNPL service on an e-commerce platform, you are essentially entering into a loan agreement with the issuing bank.

Here is an example. An excerpt from the OLA MONEY Postpaid terms and conditions, states: “The facility is a deferred payment facility provided by the merchant to the user, or a short-term credit facility provided by the financial institution to the user , as applicable, to enable you to purchase and pay for the Products/Services from the Merchant Platform or otherwise. merchant / financial institution, if applicable. The merchant allows you to benefit from the facility by allowing the user to use the services on the merchant platform. You will be able to benefit from the facility, as long as you have an account with Zipcash, subject to these conditions.

BNPL borrowings appear as short-term consumer loans in credit ratings. “BPL is nothing more than a point-of-sale loan. Consumers need to be aware that they are borrowing. However, the problem is that the company at the point of sale does not lend because it does not have a license to operate loans. They partner with other organizations,” says Mukesh Bubna, Founder and CEO of Monexo Fintech.


Lack of awareness can lead to a debt trap

BNPL is emerging as an alternative to credit cards but few understand or know about the terms and costs that come with this loan product. “The BNPL segment saw massive volume growth, driven by pandemic-induced pent-up demand. Native digital user experience, ease of fulfillment from mobile apps, 3/6/12 installment payment options, etc. have made it a highly preferred mode for digital transactions. BNPL is also removing the limitations of the two-factor authentication requirement on credit card transactions,” says Amit Das, co-founder and CEO of, a data science and analytics company.

If you use BNPL schemes to pay for your purchases, it is important to settle the payment on time. If you don’t, you’ll have to pay interest or fees.

“Customers can also have a negative impact on their credit score if they use multiple credit products in quick succession and don’t manage them responsibly. It will also lead to an increase in the cost of credit for them in the medium and long term,” says Das.

Any default will mean that your account will be considered an NPA (non-performing account), which will lower the score.

“The non-payment of BNPL dues is currently considered in a framework similar to the non-payment of credit dues. Failure to pay incurs a penalty charge on the amount (although not charged as interest as there is no interest component for BNPL) and this is usually a fee charged in addition to the overdue amount. In some cases, the penalty applied can get worse if consumers miss multiple payment deadlines,” says Lalit Mehta, CEO and co-founder of Decimal Technologies, an AI-powered loan provider.

This could easily lead you into a debt trap. Read an in-depth analysis of what these schemes are, how they compare to credit cards and the costs attached with them here.


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