Using Credit Cards, BNPL? Read This Before You Make Your Next Purchase

Rhythm Aggarwal a 30-year-old, Mumbai-based communication consultant found himself overspending his budget for a purchase that emerged from his want by Rs 6,000. “My original budget for the watch was Rs 12000, but I ended up spending Rs 18000 because I was getting the option to repay 40 days later,” he told Outlook Money. Forty days later, after repaying the bill, he would still be left with an outstanding balance. 

Aggarwal shared that he often had to turn to his friends and family members on occasion to repay his credit card bills and save his CIBIL score. Aggarwal is not alone in this, CA Niresh Maheshwari, Director of Wealth Wisdom India Pvt Ltd., a platform specialising in private equity investment shared a story of a person who bought iPhone 16 pro at the time of launch on EMI with a tenure of 8 months.

Later on, he also bought the latest version of Microsoft Surface Pro on EMI. This left him with negligible disposable income after the EMIs were deducted for his latest phone, laptop and home, despite earning an income of Rs 2 lakh monthly.

“Our findings suggest that retailers have strong incentives to offer BNPL schemes. Not only does BNPL encourage consumers to make purchases they would otherwise not make it also makes them buy more. Thus, introducing BNPL as a payment method drives up revenues,” as cited by the Harvard Business Review report.

Another product in the new line of credit source is Buy Now Pay Later (BNPL) services, launched by various Fintech. The BNPL market in India is expected to grow from  $3-3.5 billion to $45-50 billion, as per a report by the Economic Times.

Additionally, the share of unsecured credit within retail credit saw a surge from 25 per cent to 35 per cent between 2007 and 2023, indicating a continuous momentum in the growth of unsecured loans, as per a report Dynamics of Credit Growth in the Retail Segment: Risk and Stability Concerns, by RBI.

Credit cards’ gross non-performing asset (GNPA) ratio also saw an increase from 1.52 per cent in pre-COVID-19 to 1.96 per cent in post-COVID-19 levels. 

Meanwhile, for credit cards, the slippage ratio significantly increased from 3.47 per cent pre-COVID-19 to 7.12 per cent post-COVID-19, marking a deterioration in asset quality and an increase in the flow of non-performing assets in this segment.

Additionally, total receivables increased from Rs 45,078 crore in Q2 FY24 to Rs 55,601 crore in Q2 FY25 (23.3 per cent YOY growth), as per SBI Credit Card Presentation.

Speaking on what precautions to take while using credit cards or BNPL, Maheshwari suggested that an individual should not spend more than 45 per cent of their disposable income. BNPL or credit cards are a trap for consumers where they are not saving their funds, but deploying money in consumer products. Most of these products depreciate with time.

BNPL covers two aspects of consumerism and aspirations. This is charged by Gen Z’’s philosophy of “why should I wait for something for a year when I can get it right now.”

Maheshwari advised not to fall into the trap of consumerism while fulfilling my aspirations.

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