Do EMIs and BNPL Affect Your Credit Score?

Decoding EMIs and BNPL (Buy Now Pay Later)

You are waiting for those sneakers to launch. Those limited edition ones.

Exactly at 12 a.m. the sneakers are going to be available for ordering on the website. You’re constantly refreshing the page to ensure they aren’t sold out before you get a chance to place an order.

It’s 12 finally and you see them! You add them to your cart quickly before they are sold out, but at checkout, you notice the price is way out of your budget. Extremely disappointed and sad, you are closing the browser when suddenly your eyes catch the word EMI available. In other words, you realise you can buy the shoe now without paying the full amount and instead pay in parts!

What is the pay in parts concept?

As the term suggests, this payment option allows you to buy a product and not pay for it in full at the time of purchase. Instead, you can make a part payment & split the amount into equated monthly instalments (EMIs) to be paid in a fixed monthly structure.

Are there any charges? How is my credit score affected?

It depends on lender to lender. Some lenders offer a no-cost EMI up to a certain period but charge interest thereafter, while some charge a low interest from day one. However, if you skip any of the payments, interest will be charged on the balance amount along with other late payment charges. Opting for the EMI option does not affect your credit score but skipping any EMI payment does affect your score negatively. So while the pay in parts option is a very convenient one, defaulting on your payments will affect your credit score just like any delayed credit payment will.

What is the buy now pay later concept? Is it the same as paying in parts?

Buy Now Pay Later (BNPL) is a type of credit facility wherein you can buy the stuff you want but either choose to pay the full amount after a fixed period of time (usually 15-30 days) or pay in parts over several months. Certain lenders require you to pay a part of the total amount as a down-payment. Interest charges and other fees are the same as talked about in the previous paragraph. Again, here too, missing out on your due payments will negatively affect your credit score.

Coming back to your sneakers - while we understand you are likely to be very excited that you could indeed buy those sneakers, choose wisely which duration you choose for EMIs in the Buy Now Pay Later (BNPL) option. Always choose the one that fits your pocket and lifestyle the best. In other words, select a duration during which you know you will be able to pay up in time, every time.

Your sneakers will not last forever, but your credit score lasts for life. So make sure it is always a good one!

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