Buy Now, Pay Later vs. Credit Cards: Which Is Right For You? | Smart Change: Personal Finance


Kimberly Palmer

Buy now, pay later – also known as “BNPL” – has a moment. Popular providers like Affirm, Afterpay, and Klarna allow shoppers to split certain purchases into predictable installments, and many consumers choose to do so.

“The pandemic has really accelerated the use of ‘buy now, pay later’ services,” says Collin Czarneck, who was behind a recent C + R Research report on “buy now, pay later” that found that 51% of consumers say they have used such services amid the COVID-19 crisis. “There is a convenience factor associated with an increase in online shopping that people have become aware of too.”

Credit cards are of course also convenient financing instruments. And unlike BNPL, they can be used almost anywhere. However, credit card balances accumulate until the cardholder pays them off, which means that there is less predictability. And it’s the predictability of BNPL that seems to be resonating with many consumers. Czarneck’s report found that 38% of BNPL users said it will eventually replace their credit cards.

However, credit cards offer benefits that BNPL options have yet to offer, such as: B. Rewards and reporting a positive payment history to the credit bureaus. Card issuers are also increasingly offering their own versions of BNPL.

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Here are the questions to ask while weighing. Buy now, pay later options with credit cards.

What kind of financing flexibility do you need?

The C + R Research report found that 45% of BNPL users felt it was easier to make payments this way compared to credit cards, and 44% said they offered more flexibility.

“If you have a credit card, you have to pay at least the minimum payment at the end of the month, but with Buy Now, Pay Later you may have an option for three, five or twelve months,” says Czarneck. “You can set up payment in a number of ways that are convenient for you.”

Casey Merolla, a managing director in the Payment Group at consulting firm Accenture, says the type of mental accounting is easier for some consumers.

“People feel they have more control over their payments. … It’s a finite purchase and not revolving or perpetual, “she says.” Then you pay it off and it’s over. It helps people take a little more control over their spending. “There are also people who don’t have a credit card, a new funding option, she adds.

But flexibility is in the eye of the beholder.

BNPL options only apply to a specific purchase from a specific merchant, while credit cards can generally be used anywhere to make many types of purchases.

In short, BNPL can offer more flexible terms, while credit cards generally offer more flexible acceptance.

How expensive – and accessible – will the funding be?

BNPL interest rates and fees vary widely. Some options are interest-free or fee-free, which makes financing essentially free for the consumer. (BNPL providers still make money from the merchant fees that are included in the price of the product, much like payment networks with interbank fees for credit cards.)

“They either have a fixed cost or no cost and show you how much it will cost in advance,” says Ginger Schmeltzer, senior analyst for retail banking and payment practice at Aite Group. “People like the predictability,” she adds.

Longer-term loans offered through BNPL – which can last up to 48 months – usually come with an interest rate, she says, similar to a traditional personal loan. But unlike a loan or credit card, many BNPL providers do not check creditworthiness when approving buyers, which makes it easier to access finance.

Credit card issuers, on the other hand, almost always take your balance when you apply, so depending on your creditworthiness, this may not be an option for you. If you already own one and are thinking of using it to finance a purchase, be aware that credit card rates tend to be variable and are usually quite high.

However, it is important to note that if you are paying your credit card bill in full by the due date, the APR on the card is irrelevant; You don’t owe any interest at all.

Nerdy tip: Some credit cards offer 0% introductory APR deals on purchases, but most of these promotional periods end after about 18 months, and you generally need good to excellent credit ratings – FICO scores of 690 or higher – to qualify for them. You must continue to make minimum payments every month or you risk losing that promo APR.

Do you want incentives or comfort?

When you shop with a credit card, you can earn cashback, points or miles. If you have a good balance, you can find a card that gives you at least 2% back on every purchase, which can translate into big savings. Credit cards usually also offer other benefits such as purchase protection and insurance.

BNPL providers do not offer these types of rewards or protections, nor do they always offer the credit reporting benefits of credit cards.

“Most [BNPL providers] do not report to the credit bureaus, so [consumers] can’t build this story, ”says Schmeltzer, but adds that some providers are starting with it.

But there is clearly an intuitive aspect of BNPL that some consumers – and even some experts – find attractive compared to credit cards. When Czarneck recently bought furniture after moving, he decided to buy it now and pay later to finance the purchase.

“It just seemed very easy to use,” he says. “I was able to click on it from the shopping cart and knew that the approval process would take place immediately.”

It was also easier for him from a budgetary point of view. “I know exactly how much I’m going to have to pay, as opposed to a credit card where I might have a tank of gasoline and groceries that add up,” he adds.

He was willing to forego rewards for this convenience.

Does your credit card issuer already offer their own version of Buy Now, Pay Later?

Before deciding on a BNPL offer, it is a good idea to check what is currently in your wallet. Credit card issuers – who are closely monitoring the growth of BNPL – are increasingly offering their own versions of predictable payment plans for specific purchases.

Availability varies by issuer, and depending on role, terms and conditions and fixed monthly fees may also apply. But some examples are:

  • The American Express Plan It® feature.
  • My Chase Plan from Chase.
  • Citi FlexPay from Citi.
  • Credit cards from startup issuers upgrade.

Unlike BNPL, these plans are carried out after purchase. “So it’s different, but it’s worth checking what is available to you because it may offer more flexibility,” says Schmeltzer.

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