The last nine months have seen a significant drop in cash transactions, as other payment options like e-wallets, cards, and net-banking became the new normal amid the rapidly changing Indian financial ecosystem. During this same period, “buy now, pay later” (BNPL) emerged as a popular credit option among consumers, giving them instant access to an approved credit limit, which could then be used for purchases.

But what is this line of credit all about and what makes it so appealing to consumers such as Gen Z and millennials? Let’s take a look at what it entails.

Deconstructing BNPL

As its name indicates, buy now, pay later (BNPL) allows you to make a purchase without worrying about immediate funds upfront, and then repay this at a later date. Although this does equate to a small-ticket loan, this has gained significance and preference for one key reason — a convenient and seamless user experience. From shopping online to paying your bills, the cashless and cardless BNPL is efficient, quick, and consumer-friendly.

Here’s a glance at some of the benefits of BNPL:

• Instant accessto credit: You do not have to search for alternative credit options. With BNPL, you are offered instant credit at the point of sale itself, making for a smooth and frictionless purchase.

• Ease of use: Some BNPL platforms support a QR-code option where you can simply scan the code to make a payment, while others allow you to complete BNPL transactions through UPI.

• Safety and security: BNPL aids consumers in making secure payments without swiping their card and PIN, keying in their net banking details, or transferring money from an e-wallet. An OTP is generated and sent to their registered mobile phone, which is all that is needed.

Maximizing the BNPL option to your advantage

In addition to the convenience and flexibility offered by BNPL, this credit option can also help you build a positive credit profile as long as you uphold your end of the agreement with the lender or merchant, and make your repayments on time. Here are three steps to help you use the BNPL option in a responsible manner:

Monitor your BNPL transactions diligently

Yes, you can make various BNPL transactions with different merchants or lenders, but remember to keep a tab on the overall amount spent. You know your financial stand, credit obligations, and other dues, so err on the side of caution and monitor your BNPL transactions. Overspending, even if it is within your approved credit limit, can make it difficult for you to repay your dues responsibly.

Choose your repayment tenure smartly

The flexibility offered by BNPL repayment terms and tenures is a key draw. Now, there may be charges applicable, depending on the tenure you choose. If the repayment period that you have chosen is an interest-free one, you will not have to pay anything. Ensure you make your repayments before the due date or you may be charged late fees. If you are confident that you will be able to pay off the entire amount as soon as your next salary comes in. However, if you have made an expensive purchase, you can consider repaying it in installments.

Don’t miss your payments

Like all credit opportunities, it is important to practice financial discipline when making your repayments, simply because a missed payment will attract a late fee and this may impact your credit profile. Ensure you pay your BNPL amounts due by the agreed date to reap the benefits of a loyal consumer. You can also set calendar reminders and alerts to stay connected to your dues and make timely payments before they accrue interest.

In conclusion, while BNPL is definitely an appealing proposition for consumers, it is important to avoid getting carried away. Maintain financial and credit discipline to maximize this credit option to your advantage.

Make smart purchases and spend wisely.

The author is VP and Head of Direct to Consumer Interactive, TransUnion CIBIL