UPI Credit Line: Digital Credit Made Easy

A UPI credit line provides users with a pre-approved credit limit accessible directly through UPI. Think of it like a sachet-size digital credit card that works on UPI. “This eliminates the need for a physical card and PoS terminal, unlike when one makes payment through traditional credit cards. Users can make purchases using their UPI credit line just like how they do with their savings account today, offering a seamless and convenient credit experience within the UPI ecosystem,” says Prashant Kumar, Founder and CEO, Kredit.Pe, a fintech company. 

This digital-first approach, launched in September 2023 for scheduled commercial banks, was recently extended to small finance banks as per the RBI's announcement on December 6, 2024. This move aims to further enhance credit accessibility and financial inclusion, particularly for those who may not have access to traditional credit cards.

How It Works 

However, it is important to understand that there is no card infrastructure for a UPI credit line. It is simply a pre-approved amount from a bank made available to you over UPI. “It works more like a personal loan rather than a revolving credit facility. Once you use the credit line, the borrowed amount starts accruing interest, and you need to repay it within a set repayment period, as equated monthly installments (EMIs), or in full by the due date,” Adhil Shetty, CEO, BankBazaar.com. 

The other, more important difference is that the UPI credit line fills the gap unmet by credit cards. Credit cards are typically offered to individuals with higher credit scores and threshold incomes. “The UPI credit line, however, provides small, short-term credit to predominantly new-to-credit customers and those with limited credit history, or in other words, segments that may not qualify for traditional credit cards,” says Shetty. 

Interest Rates And Repayment Structures 

Interest rates, repayment structures, and associated fees for UPI credit lines vary depending on the issuer bank and the user's creditworthiness. “Generally, these credit lines offer competitive interest rates comparable to credit cards. Repayment options usually are monthly in nature and may include EMIs in the future. While some issuers may charge annual maintenance fees, the RBI emphasizes "low-ticket, low-tenure products," suggesting that UPI credit lines are particularly well-suited for smaller, short-term credit needs,” says Kumar.

Repayment structures are flexible and often allow customers to choose their repayment schedules. Repayments can be made as EMIs or as one-shot payments. “However, most of these are short-term loans that would need to be repaid within 30 days to three months. Access to fresh credit may be possible only after existing borrowing has been cleared,” says Shetty. 

Is It For You 

UPI credit lines are ideal for individuals who prefer the convenience of UPI and may lack access to traditional credit cards. They are particularly beneficial for underserved consumers, including those with limited credit history as Credit Line can go a long way in improving their credit score. Users should compare offerings and choose a UPI credit line that aligns with their financial situation and requirements.