Gone are the days when traditional credit cards were the only option for credit. Now, users can make payments, even when the bank account balance is running low, all through the Unified Payments Interface (UPI) application. The Reserve Bank of India (RBI) has recently enabled transfers from pre-sanctioned credit lines at banks through the UPI network.

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Called as UPI Now, Pay Later by some banks, this feature allows individuals to spend from this pre-sanctioned credit line and settle their dues later, all while enjoying the convenience of UPI transactions. Among key banks, HDFC Bank and ICICI Bank have already launched credit lines — HDFC UPI Now Pay Later and ICICI PayLater, respectively.

Pre-sanctioned credit lines essentially involve pre-approved credit, which banks grant to customers based on data analytics conducted on both internal deposit customers and potentially non-customers whose creditworthiness has been assessed by the bank.

Here's an FAQ on how the UPI Now, Pay Later feature works and what it means for you:

UPI Now, Pay Later FAQ: How to get credit without traditional card, interest rate, usage limit and more

I am a UPI user. How can I use the UPI Now, Pay Later feature?

You can use it if your bank offers and you are eligible for the same.

With this, you can access pre-sanctioned credit lines, similar to an overdraft facility offered by banks.

To use this feature, banks must first obtain your consent to set up a credit line with a specified limit.

Once approved, you can spend the pre-sanctioned amount through UPI applications such as Google Pay, Paytm, MobiKwik, and mobile banking UPI applications.

You can then clear your dues later by the due date.

Some banks may charge interest on the amount used from the credit line, while others offer a credit-free period with no interest.

I have always used traditional credit cards for credit. How is the UPI Now, Pay Later feature significant for me?

This feature can be a game-changer for you as it enables you to access credit facilities by linking the funding accounts to UPI, eliminating the need for physical credit cards or associated infrastructure like POS/swipe machines.

It levels the financial playing field by making digital credit more accessible.

I am a regular UPI user. What has changed for me now?

Previously, you could link your savings accounts, overdraft accounts, prepaid wallets, and credit cards to the UPI system.

With this new feature, you can also link the pre-approved credit lines to make UPI transactions.

How is UPI Now, PayLater different from other loans?

In the case of PayLater, you’ll pay interest only for the credit limit you utilise and for the number of days you use it and not on the entire amount, unlike loans.

Will I get charged for transacting via UPI Now, Pay Later?

No, you will not get charged for the UPI transaction and you do not have to pay any additional transaction charges for UPI transactions, according to HDFC Bank.

Will I be charged any interest rate for using UPI Now, Pay Later feature and when will the amount get debited from my account?

You will be charged simple interest basis the amount borrowed and for the number of days you use it.

Example: In case you use your PayLater account balance of Rs 5,000 for 10 days, then interest will be charged on Rs 5,000 for 10 days only.

This interest will be debited from the PayLater account at the end of the month.

Interest will be debited to your PayLater account on the last day of every month.

You need to deposit the interest amount in your PayLater account via online transfer.

In case, you have not paid the interest within three days (grace period), the bank will recover the same by deducting it from your primary account (Savings/ Current), HDFC Bank said.

Will I be required to use the entire pre-approved limit under the UPI Now, Pay Later feature?

Pre-approved limit will be available and it is up to your discretion whether to use it or not.

Is there any processing fee for using the UPI Now, Pay Later account? How can I pay it to the bank?

At the time of account activation, you will be charged a one-time non-refundable processing fee of Rs 199 + GST.

The processing fee will be deducted from your PayLater account.

To avoid interest charges, please maintain a sufficient balance in your PayLater account.

Please use net banking/mobile banking to transfer an equivalent amount to the PayLater account immediately to avoid any interest getting levied.

Is there any maximum limit for using under UPI Now, PayLater?

As of now, HDFC Bank has kept a limit of Rs 50,000.

Should I use the new UPI Now, Pay Later feature? Is it beneficial for me?

There are benefits of the new feature.

Firstly, it reduces the number of physical cards you need to carry, streamlining the wallets and simplifying the financial lives.

Secondly, it facilitates transactions via UPI, reducing the time and effort required to secure loans and access credit.

However, if you use it, it's advisable to monitor transactions, make timely payments, and be mindful of your spending habits, experts say.