A quiet shift is underway in how India spends, as salaries fail to keep pace with the rising cost of living.
An April 2026 white paper titled The New Indian Household Balance Sheet by wealth manager Client Associates found that net financial savings have fallen sharply to about 5.2% of gross domestic product in 2023-24, down from nearly 7.7% in the pre-pandemic years, as rising borrowings eat into household surpluses and household financial liabilities have climbed to 6.2% of GDP, a decade high, driven by rapid growth in home loans, personal credit, and credit card spending.
And somewhere in between wanting something and not being able to afford it, a new habit has taken hold: buy now and pay later (BNPL).
What is it and how does it work?
BNPL is a type of short-term loan that lets you pay for goods or services immediately and pay them back at a later date, usually in instalments or with a single interest-free deferred payment. Unlike conventional loans, it is largely interest-free as long as the customer pays on time. The cost, however, doesn't disappear; it shifts.
“Instead of offering a discount, the merchant absorbs the interest and processing fees on behalf of the customer,” said Jagadeesh Mohan, founder of EMI Saver. “It protects their brand value while also opening up a segment of buyers who couldn't otherwise afford the product—people driven by aspiration or impulse.”
You can either sign up on an app or opt for it during checkout on e-commerce platforms. This is offered by platforms such as LazyPay, Mobikwik, and even e-commerce apps such as Amazon and Flipkart through their Pay Later feature. The system checks your creditworthiness and upon approval, you receive a pre-approved credit limit, which you can use for a product, service, or to pay for utility bills.
In terms of the impact on credit score, it is the same as credit cards and loan: on-time payments can help you build or improve your score, while late or missed payments will cause immediate damage. The Reserve Bank of India has also integrated short-term digital credit into the formal credit reporting system to prevent over-leveraging and debt traps. All BNPL providers are required to be, or partner with, a regulated entity (such as a bank or a non-financial banking company), and they must report the user’s BNPL usage, including on-time payments, late payments, and defaults, to all leading RBI-approved bureaus.
Repayment, late fees and hidden costs
For repayment, a user can choose between settling the total amount in one lump sum by a specific due date without incurring extra interest or splitting the cost of larger purchases into smaller monthly installments (EMIs), which may carry nominal interest depending on the tenure. This can be done through an auto-pay/auto-debit facility, UPI (Unified Payments Interface), net banking, or e-wallets.
But things start to get complicated if you miss a payment. According to Ritesh Srivastava, founder and chief executive of FREED, a loan management company, in many cases, missing an interest-free repayment window can trigger annualized interest rates on overdue balance that can be 24-48% or even higher, depending on the terms of the lender and product structure, so the full annual interest rate will apply even on one missed payment. In addition, he said, processing and convenience fees are often buried in the checkout flow. Also, if the linked bank accounts do not have sufficient balances, failed auto-debit mandates can attract additional bank penalties, such as bounce charges.
Behavioural cost
But what initially feels like a seamless transaction comes with a behavioural/psychological cost. “The real stress with BNPL isn’t convenience—it’s the silent accumulation of liability. Because repayments often start after a 30-45 day holiday period, borrowers don’t immediately feel the impact. That delay creates a behavioural shift. People start using BNPL everywhere because it feels seamless, interest-free, and insignificant in small ticket sizes. When all those repayments finally begin showing up together, cash flows tighten, budgets get disrupted, and the burden suddenly feels unbearable,” Srivastava explained.
He called it less of a financial mistake and more a measurement mistake. He said, “Ask someone their salary and they’ll answer instantly but if you ask them their monthly EMI outflow and many either hesitate or simply don’t know. That disconnect is the real problem.”
According to him, many borrowers don’t even consider BNPL a loan because the interest appears to be 0% and the ticket size is small but once balances start rolling over and compounding, it becomes a serious issue. “At the end of the day, BNPL is still in debt—just packaged differently,” he said.
Moreover, frequent BNPL usage or missed payments can affect a borrower’s credit profile and increase their Fixed Obligation to Income Ratio (FOIR), making future loans harder or more expensive to obtain.
If you are among those using it, here's how you can manage it. According to Srivastava, every monthly repayment must fit into your budget, never use BNPL to repay another loan. The moment your EMIs cross 40-45% of your take-home income, it’s a red flag. He said in that case, borrowers should prioritize clearing high-interest balances because late fees and penalty interest can compound aggressively.