Scan now, repay later: How credit on UPI actually works

A UPI payment no longer has to come only from a savings account. Customers can use eligible RuPay credit cards and, through participating banks, pre-sanctioned credit lines linked to UPI. Users can scan a merchant QR code and pay from an approved credit facility. But credit on UPI is still credit. Interest, billing cycles, late charges and the credit limit still apply. How credit on UPI works RBI opened UPI to pre-sanctioned bank credit lines in September 2023. The bank-approved line can be linked to a UPI app and used for eligible transactions. RBI later proposed extending the facility to small finance banks. With a savings account, money is deducted from the available balance. With a credit line, the bank pays the merchant and the amount used becomes outstanding credit. Take an illustrative case. Suppose a bank approves a Rs.50,000 credit line and the customer spends Rs.8,000 through UPI. The available line can fall to Rs.42,000. The Rs.8,000 must be repaid under the product's terms. Where RuPay credit cards fit in RuPay credit cards can also be linked to UPI. The customer selects the card while paying a merchant QR code and authenticates with a UPI PIN. There is an important restriction. RuPay credit card payments on UPI are meant for merchant transactions. NPCI does not permit person-to-person transfers, cash withdrawal and several other categories through this facility. The transaction limit can also depend on the card limit, the issuer's UPI risk limit and any limit set by the customer. A credit line is not exactly the same as a RuPay card. A bank can offer a pre-sanctioned line without a traditional credit card, with its own interest rate, repayment period, charges and eligibility conditions. The cost is more than the QR payment The biggest mistake is to treat a credit-funded UPI payment like a debit transaction. The QR code determines how the payment is made, not the cost of borrowing. For example, if a lender charges 18 percent a year on a Rs.20,000 outstanding balance, simple annual interest at that rate would be Rs.3,600. Actual costs vary by product and repayment method. The credit limit also matters. Using a large part of the line leaves less room for later expenses. Missed or delayed repayments can lead to charges and may affect the borrower's credit record, depending on the product and reporting practices. What users should check before using it The useful question is what the bank charges. Product terms should show the interest rate, repayment cycle, fees and late-payment charges. Users should also check where the facility can be used. Merchant acceptance, transaction limits and restricted categories can vary. A credit line should not be assumed to work exactly like a RuPay card. Credit on UPI can be useful for a short-term cash-flow gap when repayment is already planned. The risk starts when repeated small QR payments make a sizeable outstanding balance easy to overlook. FAQs Can a RuPay credit card be used to send money to another person through UPI? No. NPCI's RuPay credit card on UPI framework is for eligible merchant payments and restricts person-to-person payments and cash withdrawal through the facility. Is a credit line on UPI the same as a personal loan? Not necessarily. It is a pre-sanctioned credit facility linked to UPI, while the bank decides its interest rate, tenure, fees and repayment terms. A lender may offer a separate personal loan with different conditions. Does every UPI user get a credit line automatically? No. The facility is offered by participating banks to eligible customers. The available limit and terms depend on the lender's credit assessment and the particular product. Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.