Buy Now, Pay Later vs Credit Cards: What to Know

By Dan Miller · June 30, 2022 · 7 minute read

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Buy Now, Pay Later vs Credit Cards: What to Know

Both Buy Now, Pay Later (BNPL) and credit cards are 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 upfront. 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 with all of the charges you made during the month. You’ll generally need to make a minimum payment, and will owe interest on any remaining balance. As long as you continue to make the minimum payments and are okay paying interest each month, there’s no limit to how long you can take to repay your purchase.

Read on for more on the differences between Buy Now, Pay Later vs. credit cards.

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What Is BNPL (Buy Now, Pay Later)? And How It Works

BNPL (Buy Now, Pay Later) is a type of installment loan that allows customers to purchase something (either online or in-store) and pay for it over time. In recent years, there’s been a big jump in growth of Buy Now, Pay Later programs.

Several retailers and even some credit card companies offer Buy Now, Pay Later. The details of these programs vary depending on the merchant, but there are some similarities. With a BNPL plan, generally you make an initial deposit of around 25% at the time of purchase. Then, you’ll make a series of installment payments until your balance is paid off, similarly to how you would with layaway.

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Pros and Cons of Buy Now, Pay Later

Now that you’re familiar with the definition of Buy Now, Pay Later, here are some of their pros and 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

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What Is a Credit Card? And How It Works

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. If you pay off the 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.

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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:



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 card distinctions:

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 Can help build your credit when used responsibly, or hurt your credit when misused
Interest Often no interest when paid on-time in full Interest charged on any outstanding balance each month
Fees Often no fees when paid on-time in full Fees vary by credit card and issuer, including a fee for late payments
Rewards No rewards earned Many credit cards offer cash back or rewards for purchases

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What Is a Buy Now, Pay Later Credit Card?

Traditionally many Buy Now, Pay Later plans were offered by companies that were not traditional credit card companies. However, several issuers are now 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.

Choosing a Buy Now, Pay Later Credit Card

Credit card issuers that offer Buy Now, Pay Later credit cards each run their programs slightly differently. You’ll want to look at the terms and conditions of each credit card you’re considering to see which works best for you. If the Buy Now, Pay Later options are similar, you can compare the credit cards themselves to find the best option.

Benefits of Buy Now, Pay Later Credit Cards

These are some of the upsides of BNPL credit cards to consider:

•   Earn rewards on your purchases.

•   You can finance the purchase for a variable length of time.

•   Responsible and on-time payments can help your credit score.

Risks of Buy Now, Pay Later Credit Cards

That being said, there are potential downsides to know about too, including:

•   Buy Now, Pay Later cards may encourage you to spend more than you have.

•   Unlike traditional Buy Now, Pay Later plans without credit or debit cards, you may be charged a fee to pay for your purchase over time.

•   There is a minimum purchase amount you must meet to be able to use the BNPL feature of your credit card.

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The Takeaway

Buy Now Pay Later and credit cards are two ways to pay for your purchases over time. With BNPL, you’ll usually pay an initial deposit at the time of purchase, and then you’ll make several fixed payments over the course of a few months. With credit cards, you have a set credit limit that represents the maximum you can spend on any purchases. Each month, you’ll get a statement with your total monthly charges and any outstanding balance. If you don’t pay your statement balance in full, you’ll owe interest on any unpaid amount.

Buy Now, Pay Later and credit cards can both make sense in certain situations if you need to make a purchase and don’t have the money right now. Another option is to get a Buy Now, Pay Later credit card, which combines features from both types of plan.

The SoFi Credit Card offers unlimited 2% cash back on all eligible purchases. There are no spending categories or reward caps to worry about.1

Take advantage of this offer by applying for a SoFi credit card today.


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 low interest and fees.

Will BNPL affect my credit score?

Generally speaking, 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. All BNPL plans work differently, so you will want to make sure you understand the terms and conditions of the plan you’re using.

Will BNPL replace the use of credit cards?

While BNPL and credit cards are both financial instruments that allow you to pay for purchases over time, they have some important differences. Since they have different pros and cons, it is unlikely that one will completely replace the other. Instead, it is more likely that both will continue to be used in different situations.

Photo credit: iStock/RgStudio

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