Both Buy Now, Pay Later (BNPL) and credit cards are both ways to spread out the payment for a purchase over time, but they have a few key differences. Buy Now, Pay Later plans typically have a specific number of payments that are determined up front. You’ll often pay a portion at the time of purchase, and then make regular payments over time, often with zero interest.
In contrast, when you pay with a credit card, you may not have to make any payment immediately. Instead, the credit card company will send you a monthly statement. You’ll likely need to make at least a minimum payment and will owe interest on any remaining balance. As long as you continue to make at least the minimum payments, there’s no limit to how long you can take to repay your purchase, but interest will continue to accrue.
Read on for more on the differences between Buy Now, Pay Later vs. credit cards.
Table of Contents
Key Points
• Buy Now, Pay Later (BNPL) plans offer installment loans, usually without interest, for a fixed number of payments.
• Credit cards provide revolving credit, requiring at least a minimum monthly payment with interest accruing on any remaining balance.
• BNPL often involves a soft credit check, while credit card applications typically require a hard credit pull.
• Unlike most BNPL plans, credit cards can help build credit and often offer rewards like cash back.
• Some credit cards now include BNPL features, blending the benefits of both financing options for select purchases.
What Is BNPL (Buy Now, Pay Later)?
Buy Now, Pay Later is a type of installment loan that allows customers to purchase something online and pay for it over time. In recent years, Buy Now, Pay Later programs have experienced significant growth.
Typically, BNPL companies allow you to split up a purchase into a set number of smaller payments (typically four), often without any interest. You make one initial payment — often 25% — and then be required to make a series of installment payments until your purchase is paid off.
BNPL services often do not do hard credit checks when you apply, making them an option for consumers with limited or poor credit. However, missed payments may be reported to the credit bureaus, and being even one day late on a payment can lead to hefty fees.
Recommended: When Are Credit Card Payments Due?
Pros and Cons of Buy Now, Pay Later
Buy Now, Pay Later comes with benefits and drawbacks. Here’s how they stack up:
| Pros | Cons |
|---|---|
| No hard pull on your credit to apply | May influence you to make purchases outside your budget |
| Generally 0% interest or lower interest than using credit cards | You won’t earn any rewards like you might by using a credit card |
| Can get approved even with less-than-stellar credit | May hurt your credit if you miss payments or pay late |
What Is a Credit Card?
A credit card is a type of revolving credit that allows you to make charges against your line of credit.
When you apply for a credit card, the issuer will do a hard pull on your credit. If approved, you’ll be given a specific credit limit that is the maximum amount you can borrow. As you borrow against that limit when using a credit card, your available credit is reduced. Similarly, it’s replenished when you make payments.
Each month, you’ll get a statement listing all of the charges you made that month, plus any outstanding balance from the prior month. If you pay off your balance in full, you won’t be charged any interest due to how credit cards work. However, if you pay less than the full amount, you’ll owe interest on any remaining balance.
Pros and Cons of Credit Cards
Credit cards can serve as a useful financial tool when you use them responsibly and adhere to credit card rules. However, they also have the potential to cause harm. Here are some pros and cons of using credit cards:
| Pros | Cons |
|---|---|
| Many more retailers accept credit cards than offer BNPL plans | May encourage you to spend outside of your budget |
| Credit cards may offer cash back or rewards for using them | Many cards come with high interest rates |
| Can help build your credit when used responsibly | Can hurt your credit if you keep a balance or miss payments |
Difference Between Buy Now, Pay Later and Credit Cards
While Buy Now, Pay Later plans and credit cards have some similarities, they have a few key differences. Here’s a look at BNPL vs. credit cards
| Buy Now, Pay Later | Credit Cards | |
|---|---|---|
| Opening the account | Apply with participating retailers at the time of purchase; no hard pull on your credit required | Apply directly through the credit card issuer; hard pull on your credit |
| How they affect credit scores | Usually no effect on your credit score (unless you miss payments) | Can help build your credit when used responsibly, or hurt your credit when misused |
| Interest | Often no interest when installment payments are made on time. | Interest charged on any outstanding balance each month |
| Fees | Often no fees when paid on-time in full | Fees may include late payment fees and annual fees |
| Rewards | No rewards earned | Many credit cards offer cash back or rewards for purchases |
What Is a Buy Now, Pay Later Credit Card?
Traditionally, Buy Now, Pay Later plans are offered by companies that are not traditional credit card companies. However, some credit card issuers are starting to offer credit cards with Buy Now, Pay Later features available.
With these Buy Now, Pay Later credit cards, you can combine some of the benefits of both options. You can use your credit card like you normally would (including earning rewards) and then identify larger purchases that you’d like to pay for over time with the Buy Now, Pay later card feature. This feature may charge a fixed monthly fee and/or interest at a lower rate than what’s typically charged on balances.
Pros and Cons of Buy Now Pay Later Credit Cards
Using the BNPL feature on a credit offers both advantages and disadvantages. Here are some to keep in mind:
| Pros | Cons |
|---|---|
| Potential to earn credit card rewards on your purchases | May encourage you to spend more money than you have |
| May be able to extend the plan beyond four payments (though interest may apply) | Not all credit card purchases qualify for the BNPL option |
| More widely accepted than third party BNPL services | Typically involves paying fees or interest |
Recommended: How to Avoid Interest On a Credit Card
The Takeaway
The choice between Buy Now, Pay Later (BNPL) and credit cards ultimately depends on your financial goals and spending habits. BNPL offers a quick, interest-free installment option for smaller purchases, often without a hard credit check, but lacks rewards and credit-building potential. Credit cards provide revolving credit, rewards, and the ability to build credit history, but carry the risk of high interest if the balance isn’t paid in full. Consider how each option aligns with your budget and debt management strategy before choosing the best fit for your purchase.
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FAQ
Is Buy Now, Pay Later better than a credit card?
Buy Now, Pay Later and credit cards can both be the right answer depending on your specific situation, so it’s hard to say that one is better than the other for every scenario. Buy Now, Pay Later can be a good option if you want to finance a purchase over a fixed period of time with no or low interest and fees.
Will BNPL affect my credit score?
Generally speaking, Buy Now, Pay Later (BNPL) plans do not impact your credit score as long as you make your payments on time. However, if you do not fulfill your BNPL contract, your outstanding debt may be reported to the credit bureaus, which could have a negative impact on your credit score.
Will BNPL replace the use of credit cards?
It is unlikely that Buy Now, Pay Later (BNPL) will fully replace credit cards. While BNPL has grown significantly, it primarily caters to smaller, short-term installment payments, often for specific online purchases. Credit cards offer revolving credit, greater acceptance across retailers, the ability to build credit history, and features like rewards programs that BNPL often lacks. Additionally, many credit card issuers are now integrating BNPL features, blurring the lines. Both options serve different, yet sometimes overlapping, financial needs and are expected to coexist in the consumer payment landscape.
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