On most e-commerce platforms online, when you are buying things, you’ll see an option before paying: Pay Later. This option is very useful of course, but the brutal fact is that this option is there to incentivise people to purchase more. In other words, it is there to ensure that more and more people keep buying at these e-commerce platforms.
These online platforms partner with lenders who are the ones actually giving this service at either a fixed fee or at zero cost.
What you may not know is that paying later at e-commerce stores can affect your credit score. Here’s an example. Capital Float partners with Amazon India and ICICI Bank to offer pay later services to give the facility to Amazon India’s customers. When, while buying anything, you choose this facility, you’ll see this credit line approved by the lender in your credit report.
Here’s another example. Aditya Birla Ltd or ABFL partners with Ola Money to offer pay later service. If you are subscribed to Ola Money Postpaid, ABFL will sanction the transaction which shall be shown on your credit report.
According to industry officials, this type of credit facility is known as Embedded Finance. It is a type of credit card facility or a personal loan.
When using postpaid schemes or pay later services, there are few things to know. During your onboarding processing when you buy something, the e-commerce platform shall tell you who the pay later service partner is. Make a note of that like you would of a credit card company. Treat them as your lender. If you miss payments or delay them, your credit score shall fall. It will get affected.
Generally, for a certain period the credit is free. However, some lenders can charge a one-time flat fee after you sign up. You need to know of these charges from beforehand.
Again, treat these services or facilities just like a normal loan. Don’t use it unless you really need to. If you have money in your account to pay for the stuff, why use this facility? If you are in a cash crunch, try delaying the purchase for a few months. Chances are, you’ll have more than enough money to buy the things you want.
Additionally, don’t buy too many things with the pay later facility, or use it too many times. As said, this is similar to taking a loan. And when you take several loans within a short span of time, your credit score falls as well.
Lastly, try not to miss payments and certainly don’t fail to repay. That can devastate your credit score, the effects of which can continue for years.