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While most traditional lenders check CIBIL score to approve a loan or credit card application, there are certain emerging financial companies who offer credit regardless of your credit score. Apart from the easy and quick availability of credit, there are many other reasons why such financial companies are gaining popularity. Among these is the flexibility and ease of borrowing for small as well as high-value needs. And with digital provisions, most companies offer credit with a completely online process and in a matter of minutes.

However, some credit services that give you easy access to credit at breakneck speed may actually become a credit trap down the road. Falling into a vicious cycle of debt can negatively impact your creditworthiness. As a result, it becomes pertinent for you to know about these traps and avoid them to protect your financial stability. To make things easy for you, here are some credit traps that you should keep in mind while making a borrowing decision. 

Buy Now Pay Later feature that encourages impulsive spending

Have you ever come across something that you want to buy but don’t have the resources to pay for it right then? Buy Now Pay Later, commonly known as BNPL, can help you in such situations. BNPL is a feature that lenders offer to make it easy for you to pay for your purchase at a later date either by splitting the cost into smaller instalments or as a lump sum. You may normally use this feature to buy a smartphone and repay the cost once you receive your salary.

While this can help, relying too much on it can result in add-on debt that you may not be able to keep a track of. This could then result in you defaulting on your repayment which can negatively impact your creditworthiness and result in high interest rates that could spiral into a debt trap. Check CIBIL score or credit score in such circumstances and you will see its effect if you are unable to repay as per the terms. 

Payday loans that may result in you spending beyond your means 

Payday loans are quick financing solutions that you can access in times of urgent need. These loans come with the condition that you repay the amount when you receive your salary. However, these can make you financially vulnerable if you do not manage your borrowing properly as they only offer temporary relief. Payday loans generally come with a higher interest rate compared to traditional loans, which can increase your repayment burden. As a result, you may need to borrow more to pay off your existing debt.

EMI conversion that makes repayment tenor longer than necessary

Ever been in a situation where you could only buy something if you paid for it in instalments? EMI conversion is something you can do at a retail store directly or using your credit card. While it does allow you to boost your affordability, it also involves certain charges and fees. It also tempts to you take the longest repayment duration, which also affects your budget in the future. Not paying these EMIs on time may also affect your creditworthiness and result in fines and interest penalties that can burden your finances. 

Fine print with hidden costs that drive up the cost of borrowing

Reading through the official documents and understanding the terms and conditions of credit is something that you should make a habit of regardless of your financial standing. Often times the fine print may mention hidden costs and terms that can drive your cost of borrowing in the form of high interest on delayed or missed payments. This either results in increasing your EMI amounts or lengthening your repayment duration. An increased cost of borrowing may lead to you paying more than you intended or can afford. As a result, you may get stuck in a cycle where you keep borrowing to pay off existing debt or keep missing dues and accumulating interest. 

An important thing to remember is that these services are not designed to push you into a debt trap. A reason why they may seem like this is due to excess reliance on readily available credit that doesn’t require much paperwork and is quick to access. In most cases, you will not know if any of these services actually affect your creditworthiness. Thankfully, you can avoid falling into such a trap in just a few steps. When you check CIBIL score or credit score regularly, you can monitor your credit decisions and learn from them. One of the easiest ways to do so is on the Bajaj Finserv website. Here, you can check CIBIL score by PAN card in just a few minutes and get your results instantaneously. So, check your CIBIL score today and stay updated about your creditworthiness. 

Disclaimer: This article is a paid publication and does not have journalistic/editorial involvement of Hindustan Times. Hindustan Times does not endorse/subscribe to the content(s) of the article/advertisement and/or view(s) expressed herein. Hindustan Times shall not in any manner, be responsible and/or liable in any manner whatsoever for all that is stated in the article and/or also with regard to the view(s), opinion(s), announcement(s), declaration(s), affirmation(s) etc., stated/featured in the same.

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