UPI Credit Line: Your New Way To Borrow On The Go; How To Apply

We are all aware of the Unified Payments Interface (UPI), which was first launched in April 2016 by former RBI governor Raghuram Rajan. Now, UPI has expanded its offerings with a new feature called 'UPI Credit Line'.

What is UPI Credit Line?

UPI Credit Line allows its users to borrow money within UPI apps such as PhonePe, Google Pay, Paytm, etc. Instead of using their own funds (like hard cash or existing bank balance), a UPI Credit Line user can borrow money directly and pay for things with UPI. Importantly, a user only pays interest on the amount they actually use, not on the entire sanctioned credit limit.

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UPI Credit Line: Why is it a Big Deal?

For people who may not own credit cards, such as many youngsters belonging to Gen Z, this offers an easy way to borrow funds on convenient installments with potentially much lower interest rates compared to a typical bank loan.

Another significant benefit of UPI Credit Line is that it makes borrowing small loans much easier for individuals who do not own any credit cards or haven't availed any traditional loan facilities.

Further, a major advantage of availing UPI Credit Line services is their convenience and ease of use. Just like a normal UPI payment, one can simply scan a QR code or enter a UPI ID. No extra steps or physical cards are needed.

UPI Credit Line: Wider Access to Credit

As UPI Credit Line allows users to borrow small amounts, it has opened up more credit services, helping individuals manage everyday expenses or emergencies, even in smaller towns.

How is it Different from Credit Cards or 'Buy Now, Pay Later' (BNPL)?

Credit Cards: UPI Credit Line is similar to credit cards in that you're using borrowed money. However, it's simpler – there's no physical card, often lower fees, and it's directly integrated with your UPI app.

BNPL: BNPL is typically offered by specific companies and only works with certain stores. UPI Credit Line is approved by your bank, making it more reliable and accepted wherever UPI is used.

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Who Can Use It and How to Apply?

Currently, only a few banks (like HDFC Bank, ICICI Bank, Axis Bank) offer this to specific customers. You'll likely need a good credit history or be an existing bank customer.

UPI Credit Line: How to Apply

1. Check Your App: Look for offers in your bank's app or your UPI app (PhonePe, Google Pay, etc.).
2. Fill Digital Form: If you're eligible, you'll fill out a short digital form.
3. Accept Terms: You'll agree to the repayment terms and conditions.
4. Linked & Ready: Once approved, your credit line will appear as an option in your UPI app for payments.

UPI Credit Line: Interest Rates and Repayment

1. Interest: Banks charge interest only on the money you actually borrow.
2. Rates and Period: The interest rate and the repayment period depend on your bank and your credit history.
3. Repayment Options: Some banks might offer EMIs (equated monthly installments) or a few interest-free days.
4. No Rewards: Unlike some credit cards, you might not get cashback or rewards. However, it's usually faster and cheaper to use.

Here is how UPI Credit Line works in simplest words

• Step 1: First, the UPI app seeks permission from your authorised banking system. When the bank approves your request, it simultaneously sanctions a special 'spending limit', much like a small pre-approved loan.
• Step 2: This sanctioned spending limit will now appear as a payment option in your UPI app (such as PhonePe or Google Pay), operating like a regular bank account.
• Step 3: When you need to pay for something, you have a choice: you can either use money from your own bank account or utilize this special "spending limit."
• Step 4: You can choose to pay back later. You will pay interest only on the amount you actually spent, not on the entire credit limit the bank made available to you.