Beyond the Monthly Payment

How Nepal’s buy now, pay later boom can change the way consumers borrow and why transparency matters

Rs 8,000 a month. That is what the screen shows. The phone costs Rs 48,000 but that is not the decision most people feel they are making. They are deciding whether they can afford Rs 8,000 this month, and often the answer is yes. That gap between the total price and the monthly payment is where buy now, pay later (BNPL) products do their work.

Instalment offers are suddenly everywhere in Nepal, increasingly sold under the ‘buy now, pay later’ umbrella term borrowed from Silicon Valley. In Nepal, the label covers two different things.

The first is familiar and banks have offered it for years under different names. You buy something on a credit card and then ask your bank to convert the purchase into monthly instalments.

The second is newer. Ten banks now offer Foneloan through their mobile apps. Instead of depending on a credit card, the app assesses your salary and transaction history, sets a borrowing limit and lets you pay later at any merchant accepting a Fonepay QR code.

There is nothing wrong with paying for a large purchase over time. For many people, it might be the only practical way to buy a phone or laptop. The concern is that these loans can often cost more than they appear to and encourage people to spend more than they otherwise would.

Zero percent is not usually zero

In the classic BNPL model, the customer pays nothing extra for the purchase. Companies like Klarna and Afterpay, which pioneered BNPL, make their money primarily from merchants, who pay higher transaction fees because instalment options bring them new customers.

In Nepal, the incremental cost is often borne by the shopper. This can take the form of interest, a handling fee or a combination of both.

Take a Rs 48,000 phone financed over six months through NIC Asia’s Instabuy, one of the offerings that clearly lists its fee schedule. The loan advertises a zero percent interest rate, which is technically true. Instead, the bank charges a 5% handling fee upfront, or Rs 2,400. That works out to an effective annual borrowing cost of 17%, roughly what an unsecured personal loan in Nepal would cost.

The economics look very different for smaller purchases because the handling fee is subject to a minimum charge. The fee is 5% of the purchase price or Rs 1,200, whichever is higher. Financing a Rs 5,000 purchase over six months through the same offering attracts that Rs 1,200 minimum fee, nearly a quarter of the purchase price, pushing the effective annual borrowing cost above 80%. The people financing smaller purchases are also likely to be those with the least financial flexibility.

The companies do not hide this information. However, it is harder than it should be for borrowers to compare one instalment offer with another.

Designed to increase spending

There is another reason merchants like these products: people spend more.

Research from Harvard Business School suggests BNPL increases spending by roughly 10%, with the largest effect among consumers who previously spent the least. A product that accelerates discretionary spending among those least able to afford it could push many households into financial hardship. That should matter even more in Nepal than in richer countries. There is a much narrower social safety net here when a month goes wrong and a bad month can become a lasting one.

Other countries offer a preview of where this can lead. In the United States, BNPL started as a way to spread the cost of discretionary purchases but it is increasingly being used for everyday essentials. Last year, Klarna started supporting DoorDash orders and almost 30% of users now say they have used BNPL to buy groceries. In the United Kingdom, more than 40% of BNPL users report borrowing additional money to make their BNPL instalment payments. Left unchecked, debt can become a persistent part of everyday life.

A simple fix

Nepal is still early in its BNPL journey. Credit cards remain relatively uncommon but Foneloan is available directly through bank apps, which puts instalment credit in front of a much larger audience than card ownership would suggest.

Nepal Rastra Bank has already done a good job requiring lenders to disclose their fees. It should also require lenders to display the effective annual borrowing cost, incorporating interest, handling fees and any other charges.

This would make comparisons much easier. More importantly, it would remind borrowers that they are taking a loan with real costs, not simply agreeing to a small monthly payment.

Nepal does not need to discourage instalment credit. Used well, it expands access to products that many households genuinely need. But borrowers should be able to compare loans as easily as they compare phones.