Buy now, pay later (BNPL) is credit offered at a shop's checkout, so that you can take a product now and pay for it later. In India it is often called cardless EMI, because you can pay in monthly instalments without a credit card.
There are two main kinds. With pay later, you take the product now and pay the full price after 15 or 30 days. With cardless EMI, you split the price into EMIs. An EMI, or equated monthly instalment, is a fixed amount paid every month until the price is repaid.
Imagine you want a ₹9,000 air cooler before the summer, but you do not have a credit card. At the checkout, the payment gateway shows a cardless EMI option. You enter your mobile number and PAN, and confirm with an OTP. The BNPL company checks your credit score with a credit bureau, the company that records how Indians have borrowed and repaid. Its credit decision engine then decides how much it can lend you. All of this takes under a minute. You are approved, and you will pay ₹3,000 a month for three months. The shop receives the full ₹9,000 now, from the lender.
Sometimes the EMI is called no-cost EMI. This means you pay no interest. The interest is still paid, but by the shop or the brand, as a discount to you.
Who actually lends the money? Under RBI rules, only a bank or a non-banking financial company (NBFC) may lend. Many BNPL apps are fintech companies that work with a partner NBFC. The difference is explained in NBFC vs bank.
BNPL companies earn money in two ways. The shop pays them a fee for each sale, because BNPL helps the shop sell more. The borrower pays interest or a late fee on some loans.
BNPL is close to an instant personal loan app. The difference is where you meet it. A personal loan app gives you cash. BNPL gives you credit for one purchase, at the moment you buy. That is why it is an example of embedded finance.