How BNPL firm term loans now work

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Buy Now Pay Later (BNPL) player Slice last week introduced “real-time” term loans to replace its previous line of credit offering. This change stems from the banking regulator banning fintech players from offering revolving lines of credit on prepaid cards and wallets.

Previously, customers were assigned a line of credit when they registered on the platform and could therefore tap into the pre-approved line of credit to make payments. Now customers will instantly take out a new loan (called a term loan) each time they make a payment. For example, if you choose Slice when paying on an online food delivery platform for a transaction of 600, you can borrow 600 from an NBFC partner of Slice. Once the NBFC partner approves the request, they will transfer the amount to the Slice card (issued in partnership with SBM bank). Axio (formerly CapitalFloat) also follows a similar lending method.

A line of credit is qualified as a loan in the accounting books. So when a consumer is assigned a line of credit, it appears as an active loan in their credit bureau, whether or not the consumer uses it.

Under the term loan model, only the amount the consumer borrows will show up in their credit bureau. In this regard, the term loan model is a step up from the earlier line of credit product. The repayment structure will remain the same wherein customers will be given a pre-determined interest-free window to repay the full amount, after which interest will begin to apply. Regular use of this feature for payments could cause problems for your credit score, as lenders may consider you a subprime borrower.

Adhil Shetty, CEO of BankBazaar.com, explained, “Any loan you take out with a regulated bank or NBFC will have a credit check. It is for the lender to understand your financial habits and your stability. Records of all open credits as well as those closed within the last 3-5 years will be detailed in the credit report, and this is one of the key checks any lender undertakes before approving a loan. Every serious inquiry about your credit score lowers your score by a few points.”

Slice, in a communication to customers, said the change did not negatively impact their credit score.

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