The Hidden Cost of 'Buy Now, Pay Later': A Shariah Analysis of India's Fintech Boom

Imagine you are scrolling through a shopping app late at night. You see a product that you want to buy, but you let it go because you don't have enough money to pay for it. Then you get a message from a BNPL app offering the same product as a 3- or 4- instalment option. Without any hesitation, you select the BNPL scheme. Millions of Indian consumers, including many Muslims, make this same decision every day across shopping platforms, food delivery apps, and digital payment services. India's booming fintech industry has made us spend freely without any thinking under the feeling that it is interest-free. But is it really? And, more importantly for us as Muslims, is it halal?

Among the companies that offer "Buy Now, Pay Later" services, Bajaj Finserv is one of India's largest non-banking financial companies. Its EMI network has helped it develop a customer base, especially among the young people of India. The network enables customers to shop at 1.5 lakh partner stores and online platforms and make payments for products in instalments ranging from 3 to 24 months.

Bajaj Finserv offers schemes and advertises them as "No Cost EMI". Customers often end up paying processing fees of up to ₹1,017 per transaction. In these zero-interest schemes, the interest is not really removed. It is just shifted. The store selling the product pays a discount fee to Bajaj Finserv. In many promotional offers, that cost is quietly added to the product price. As a result, the customer ends up paying more without realising it. If a payment is late, a penalty of 36% per year is charged immediately.

LazyPay is a BNPL platform owned by PayU, one of India's leading digital payment companies. It allows users to make purchases across more than 200 partner platforms, including food delivery, travel, and shopping apps, consolidating all spending into a single monthly bill. Users receive an instant credit limit between ₹10,000 and ₹100,000, approved within minutes by AI without any human review. If you pay this monthly bill in full, no interest is charged. However, if you choose to pay in EMIs, an annual interest rate ranging from 18% to 32% will be applied to the balance. Late payments attract automatic penalties of ₹250 to ₹500 plus 18% GST. Late-payment charges are applied automatically according to the agreed terms and conditions.

As we know, many Muslims assume that as long as a product is labelled "zero interest", it is permissible. But in Islam, Riba is not defined by "high interest" versus "low interest". Rather, it is defined by any stipulated predetermined increase on a loan or debt, however small or cleverly hidden. It is Riba, not the label used in marketing.

The "Zero Cost EMI" offered by Bajaj Finserv is a good example. When a merchant offers you zero interest, they do not absorb that cost themselves. Instead, they pay what is called a Merchant Discount Rate to the financing company, such as Bajaj Finserv. This discount is then quietly built into the product price that customers pay. Customers are still paying interest, but it is just through another door.

Similarly, LazyPay works in the same way. When the monthly bill is converted into EMIs, a predetermined interest rate is added. If you miss a payment, a fixed penalty is charged on the amount. Both of these are textbook examples of Riba: a fixed excess charged on a deferred payment. That means any stipulated interest on a loan or debt because of time is riba, even if it is small or renamed as "fees", "service charges", or similar terms.

The Qur'an is clear about the concept of 'riba' and its prohibition. Allah says in Surah Al-Baqarah: "Allah has permitted trade and forbidden Riba" (2:275). In another ayah, Allah says, "If you do not stop (those who continue in Riba), then beware of a war with Allah and His Messenger!" (2:279).

The Prophet Muhammad (PBUH) cursed not only the one who takes Riba but also the one who pays it, the one who records it, and the witnesses to it. They are all equal in sin (Sahih Muslim). All those connected to Riba are equal in sin and are cursed by him.

It is important to note that our classical Islamic jurists permitted instalment sales where the price is fixed and agreed upon upfront. The four Sunni schools of jurisprudence generally accepted this principle. A higher deferred price over a cash price is allowed as long as both parties agree clearly at the time of the contract (al-'aqd). The extra amount is in exchange for deferment—not interest.

This is exactly where Bajaj Finserv and LazyPay fail. Their charges are not fixed upfront. They include hidden fees, variable rates, and automatic late penalties added after the contract. This is not a permissible instalment sale model. From the perspective of mainstream Islamic jurisprudence, these features constitute 'riba'. 

This does not mean Muslims cannot make instalment purchases, but it means the current platforms need reform.

For now, the most practical alternatives are simple. We can use debit cards or prepaid wallets. This way, we spend only what we already have. For larger purchases, some Islamic cooperative societies and NBFCs in India offer Murabaha-based financing, where the price is fixed upfront with no hidden charges. If we have any urgent personal needs, Islam encourages Qard Hasan as a noble form of mutual assistance, a benevolent, interest-free loan between family or friends. This helps the needy without exploitation. It gives immense spiritual reward, divine forgiveness, and social blessings to the lender even though it provides zero financial profit. Because of this, Qard Hasan remains one of the most underused but powerful Islamic financial tools.

Lastly, India's Islamic fintech space is still developing. But until Shariah-compliant BNPL platforms arrive, conscious spending and community-based lending are the most honest alternatives available to Muslim consumers.

The next time you see a message from a BNPL app offering any product as a 3- or 4- instalment buying option, just pause for a moment. Read the fine print and understand it carefully, especially what you are actually agreeing to. As Muslims, our financial choices are not separate from our faith. Every transaction we make should bring us closer to Allah. The convenience of BNPL is real and very useful for those with financial problems, but so is the prohibition of Riba. Before you click "Buy Now", ask yourself: Do I need this right now? Can I pay for it without borrowing? And if I must borrow, is this loan truly free of Riba? Think also about the words of Allah and the curse of our beloved Prophet Muhammad (PBUH). Our Deen gives us a complete financial system. We have the options of Qard Hasan and Murabaha-based financing. We just need to use them.