Personal Finance

These pay-later cards offer better flexibility and simplicity in repayment, but be aware of risks too

Fintech start-ups such as Slice and Uni are tapping the under-served young customer base, who often lack credit history, by offering credit card challengers. Offering attractive features, these new-fangled credit card challengers stand out in terms of better flexibility and simplicity in repayment. But customers would do well to understand the risks associated with these cards. Here is all you should know.

How to get a card

Slice and Uni source card customers while the financing component and card issuance duties are usually provided by other financial institutions. These cards run on payment networks operated by Visa. 

One can join the credit card challenger bandwagon with a few simple steps through the respective mobile apps. We tried both Slice and Uni offerings and it took us 5-10 minutes to complete the process (as salaried customer). Depending on the platform, you are asked for details such email ID, date of birth, PAN, Aadhaar, employment status, father’s name, etc., and submit a mandatory selfie. The apps also ask for some phone permissions.

Your existing credit scores and reports (CIBIL/CRIF) are accessed by the platforms. You also have to submit the address where you want the physical card to be delivered (within 5-7 days). If the application is processed successfully, the customer is intimated through the app as well as email. The virtual card will be ready instantly. A sanction letter and loan agreement is also emailed and it mentions broad terms and conditions such as sanction amount/credit limit, credit line tenor (months), charges & fees, overdue interest rate, etc. You can also find information about cost in the respective apps.

Freebies galore

A traditional credit card is a physical or virtual payment instrument containing a means of identification, issued with a pre-approved revolving credit limit. It can be used to purchase goods and services or draw cash advances, subject to prescribed terms and conditions. But these cards come with a wide range of charges, and are not given out freely. Convenience and speedy issuance are among the reasons credit card challengers have struck a chord with new-age customers. But, freebies remain the biggest draw.

There is no joining fee or no annual fee (typical credit card bring back this fee from 2nd year onwards). What’s more, these new cards let you pay your monthly spends in 3 parts over 3 months for no extra charges. For e.g, if you spend ₹45,000 today, only 1/3rd of this i.e. ₹15,000 will get billed this month. This is a longer repayment window compared to grace period in traditional credit cards; also, if you split repayments in traditional credit cards you have to pay interest. Uni customers can choose the transactions for which they want to pay in full and split the rest over three months.

Fuel surcharge (up to a certain limit) is completely waived. Additionally, credit card challengers provide 1-2 per cent cashback on transactions or repayment. Also, these cards run special offers with many e-commerce partners and use of cards for such transactions can get you discounts. 

Fees, charges

Late payment fees are one of the main costs. This is applicable when there is a delay in repayments beyond due date. Slice levies daily slab-wise charges (up to ₹150) based on principal due or 30 per cent of outstanding, whichever is lower (max: ₹3,000). In case of Uni, the late fee slabs start from ₹30 to ₹3,000 per billing cycle and are based on billed amount. For any payment less than billed amount in case of Uni pay-later repayment, the borrower may be charged carry forward fees of up to 6 per cent on the remaining unpaid amounts.

While there is no interest on timely bill payment and no charges for bill prepayments, there is an interest component of 36 per cent p.a. interest rate if you split your bill into more than 3 instalments at Slice. For no-cost EMI vouchers (merchant gift vouchers from Flipkart, Amazon, Myntra etc.) with longer tenure, interest of 24 per cent p.a. is charged.  

Slice allows transferring a part of your credit limit to a Paytm/bank account for a fee (₹10 to ₹1,800) based on order amount. However, interest charges are applicable on the total order amount at 42 per cent p.a.

Risks

There are users of Slice and Uni cards who have taken to the social media platforms to highlight their grievances. Their complaints are generally related to repayment issues, recovery methods, lack of understanding of card terms and conditions, personal data concerns, etc.  

While the credit card challengers allow you to split your monthly bills into three cost-free instalments, handling easy debt over the longer term requires utmost discipline. Late fees and charges are higher in comparison to traditional credit cards.

If you already have a credit card, these new offerings do not give you anything extra special. For new-to-credit customers who may not be eligible for traditional credit cards, these cards are a stepping stone. Use them only for short-term liquidity crunches.

Although BNPL trend is catching up, consumers can get trapped due to overspending and impulse buying since they will have a chance to pay only one-third of the amount at a given point in time.

Published on May 07, 2022