Personal Loans, Overdrafts, and BNPL: Should You Use Them?

Fatima Qureshi
Jul 5
1 min read

Updated: 5 days ago

Credit can offer flexibility, but not all borrowing tools are created equal. Understanding when to use personal loans, overdrafts, or Buy Now Pay Later (BNPL) options can help you avoid costly mistakes.

1. Personal Loans

What they are: Unsecured loans with fixed EMIs and interest rates.
When to use: For planned needs like home repairs, medical expenses, or debt consolidation.
Pros: Predictable payments, longer tenure.
Cons: Higher interest (10%–24%), strict eligibility.

2. Overdraft Facilities

What they are: Linked to your bank account, allowing you to withdraw more than you have.
When to use: Short-term cash crunches, business liquidity.
Pros: Pay interest only on used amount.
Cons: Can encourage poor spending habits, interest can pile up if unmanaged.

3. Buy Now Pay Later (BNPL)

What it is: Allows you to pay in interest-free installments, often via apps or credit partners.
When to use: Small purchases that you can repay within the offer period.
Pros: No interest if repaid on time, easy approvals.
Cons: Missed payments lead to heavy penalties and credit score damage.

Smart Usage Tips:

Always read the fine print—watch for hidden fees and penalties.
Don’t borrow to invest or splurge.
Check your repayment ability and credit score impact.

Conclusion:

Use credit tools as a bridge, not a lifestyle. Borrow only with a plan to repay—and remember, just because it’s easy to get credit doesn’t mean it’s wise to use it.