“Buy now, pay later” or by credit card?

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When you need to buy something but don’t have the funds right now, most people turn to their credit cards, hoping they can pay off a big purchase with the next one or more checks from. pay. But not everyone is entitled to or want to use a credit card. Retailers have started to get smart and find new ways to help people buy items when they don’t have the funds: Buy Now, Pay Later (BNPL) programs.

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“BNPL apps like Klarna and Affirm give customers the ability to split their purchases into four interest-free payments,” said Tionna Hicks, Certified Financial Education Trainer and Founder of The Honest Plan.

Put simply, “BNPL and credit cards are forms of loan or credit where you don’t pay anything now, but will be billed monthly until the debt is paid off,” said Scott Nelson, CEO of MoneyNerd Ltd.

So which option makes the most sense for a consumer? It’s not as easy as saying one or the other. Here, we break down some of the pros and cons of each.

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BNPL’s biggest pros

Where BNPL excels when it comes to credit cards is your ability to pay over time without accumulating interest, said Julie Ramhold, consumer analyst at DealNews.com. “Most businesses use a four-way payment model where buyers make the first payment at the time of purchase, then spend the next six weeks making the other three payments. She points out that a typical credit card will start charging you interest after just four weeks.

Flexibility is a key advantage of BNPL. “Get your articles now rather than having to wait,” Ramhold said.

You can also choose how much to pay with each installment, usually without a defined minimum payment.

Read: The main things to consider before applying for a new credit card

BNPL does not require a credit check

“BNPL options are often available to those who are not eligible for a credit card but can vary widely in terms of interest rates and loan terms,” said Jake Hill, CEO of DebtHammer. Most BNPL programs don’t even perform a credit check on applicants (although some do).

In fact, BNPL may be considered less risky than a credit card, according to Dror Zaifman, director of digital marketing at iCASH. “When someone misses a payment on a credit card, the consumer has to pay interest and can be reported to collections by the creditor if it is still unpaid after 60 days. BNPL programs only charge the user if they do not make a payment on time.

Zaifman said BNPL programs may be better for small purchases, however, because you have a better chance of repaying a small amount.

“Before choosing between the two, consumers should determine if they can pay off the BNPL option balance on the due date,” said Bob Castaneda, program director at the College of Management and Technology. Walden University. severe penalties for retroactive interest rates. There is no such thing as a free meal, so consumers should research the best payment option, while considering the lender’s interest rates and fees, before making a purchase.

See: 10 Things to Do Now If You Have a Credit Score of 500

Disadvantages of BNPL

BNPL typically only applies to a single purchase from a single merchant, said Lee Grant, CEO of Wrangu. So, if you try to buy multiple items from multiple retailers with this method, you might be out of luck.

Additionally, although many BNPL programs do not charge interest or fees, some do. “BNPL’s longer-term loans, which can last up to 48 months, have an interest rate similar to that of a standard personal loan,” Grant said. “Unlike a loan or credit card, however, many BNPL providers do not check credit before approving clients, which makes financing more accessible.”

And remember not all retailers accept BNPL, so your buying options may be limited, especially for things like groceries and gasoline, Nelson said.

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Credit cards can offer rewards

What BNPL can’t do that credit cards can do is offer you rewards like points and miles earned for every dollar spent, said Carol Tompkins, business development consultant at Accounts Portal.

“Credit cards will offer rewards such as travel insurance, purchase protection and more,” she said, as well as security against fraud.

Find out: 10 signs it’s time to give up your credit card

Credit cards help you earn credit

The added benefit of credit cards is that they help build your credit score, Tompkins said. BNPL does not affect your credit score unless you don’t pay. “So, are you looking for rewards or convenience? ” she asked.

Credit cards are more versatile

Credit cards offer more flexibility in what, where, and how much you can buy, according to Hill.

Options: 10 credit cards to consider for travel rewards

Credit cards charge interest

Probably the biggest downside to credit cards is that they charge a significant amount of interest on balances carried over to the next month. Also, you need to qualify for them based on your credit score and other variables, which may hurt some buyers.

It’s a personal choice

“Ultimately, the best option depends on the consumer’s flexibility and ability to pay the full balance of a purchase now, pay later, on time. Otherwise, they would have to pay with a credit card, ”Castaneda said.

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Last updated: October 6, 2021

This article originally appeared on GOBankingRates.com: What’s smarter: “Buy now, pay later” or credit cards?

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