Although credit cards are the preferred payment method, BNPL appears as a new competitor. The two methods allow customers to buy without immediate payment, but they are different in interest and repayment options. BNPL is preferred for online transactions by more than 60% of buyers; Thus, it is necessary to know their differences, and where it is best to meet personal financial requirements.
The discussion points out the pros and cons of credit cards and Buy Now Pay Later, including repayment schedules and business implications.
What is Buy Now, Pay Later (BNPL)?
BNPL is a short-term financing solution that allows consumers to buy products immediately and pay later in installments. Usually, BNPL providers offer an interest-free repayment period, making it an attractive alternative for consumers who cannot qualify for traditional credit cards.
How BNPL Works
Checkout Option: At checkout, customers select BNPL as their payment method.
Instant Approval: The BNPL provider evaluates basic details (without a full credit check in most cases) and approves the transaction.
Merchant Payment: The BNPL provider pays the merchant on behalf of the customer.
Repayment in Installments: Customers repay the amount in fixed installments over a few weeks or months.
Some BNPL providers may require a small down payment, and missed payments can incur additional fees.
What is a Credit Card?
A credit card is actually a kind of revolving credit that banks or financial institutions give to users for borrowing money up to their stated limit. The cardholder is expected to settle the amount borrowed either fully by a certain date or in just the minimum installment amount, and with interest charged on any outstanding balances.
How Credit Cards Work
Credit Approval: Banks issue credit cards based on creditworthiness, income, and credit score.
Purchase Flexibility: Customers use credit cards for online and offline transactions.
Monthly Billing Cycle: The total expenditure is billed monthly, and users have the option to pay in full (interest-free) or in installments (with interest).
Interest and Late Fees: If the balance is not cleared within the interest-free period, high interest rates apply.
BNPL vs. Credit Cards: A Detailed Comparison
| Feature | BNPL | Credit Card |
| Approval Process | Instant or quick, minimal credit check | Requires credit history and income proof |
| Eligibility | Low income or limited credit history accepted | Requires a good credit score |
| Usage | Only available with partnered merchants | Can be used anywhere credit cards are accepted |
| Repayment Tenure | Fixed, short-term installments | Flexible monthly billing cycle |
| Interest Rates | Interest-free if paid on time; high penalties for late payments | Interest-free within billing cycle; high-interest rates on unpaid balances |
| Credit Score Impact | Not always reported to credit bureaus | Helps build credit if payments are on time |
| Late Payment Fees | High penalties if payments are missed | Late fees and compounding interest on unpaid balance |
| Rewards & Cashback | Limited or none | Many offer cashback, travel rewards, and discounts |
Pros and Cons of BNPL vs. Credit Cards
Pros of BNPL
Easy Signup: Quick approval without lengthy documentation.
No Hard Credit Check: Does not impact credit score (unless reported for missed payments).
Zero-Interest Period: Most BNPL services charge no interest if payments are made on time.
Budget-Friendly Repayments: Fixed installment plans help manage expenses.
Cons of BNPL
Limited Merchant Acceptance: This can only be used at specific retailers.
Encourages Overspending: Easy approvals can lead to impulse buying.
High Late Fees: Missed payments attract steep penalties.
No Credit Score Benefits: Unlike credit cards, BNPL does not always contribute to building a credit score.
Pros of Credit Cards
Universal Acceptance: Can be used anywhere.
Builds Credit Score: Helps establish a strong credit history.
Reward Programs: Offers cashback, travel miles, and discounts.
Emergency Funding: Access to higher credit limits for urgent needs.
Cons of Credit Cards
Debt Accumulation: Revolving credit can lead to a cycle of debt.
High Interest Rates: Unpaid balances attract high interest charges.
Hidden Fees: Many cards have annual fees, foreign transaction fees, etc.
Risk of Overspending: Credit availability can lead to reckless spending.
Key Differences in Repayment Structure
BNPL Repayment: Fixed installment plans with a predetermined schedule.
Credit Card Repayment: Monthly billing cycle with a minimum payment option.
| Factor | BNPL | Credit Card |
| Repayment Cycle | Weekly or monthly fixed installments | Monthly statement with full/partial payment options |
| Interest-Free Period | Typically 0% if paid on time | Usually 30-45 days |
| Late Payment Charges | High penalties and potential interest | Late fees + compounding interest |
BNPL vs. Credit Cards: Which One is Better for Businesses?
For businesses, the choice between BNPL and credit cards depends on the use case.
BNPL for Business
Good for small expenses and short-term financing.
Helps businesses that don’t qualify for credit cards.
Not ideal for high-ticket purchases due to credit limits.
No significant credit benefits for the business.
Credit Cards for Business
High credit limits make them suitable for large expenses.
Business credit cards offer rewards, cashback, and travel benefits.
Helps establish a business credit history.
Requires financial discipline to avoid debt accumulation.
| Factor | BNPL | Bank Loan |
| Approval Time | Instant | Takes days/weeks |
| Documentation | Minimal | Extensive |
| Interest Rate | Usually 0% if repaid on time | Varies (often lower than credit cards) |
| Loan Amount | Small credit limits | High loan amounts |
| Repayment Tenure | Short (weeks to months) | Longer (months to years) |
Who Should Choose What?
Choose BNPL if:
You need quick, small loans for short-term purchases.
You don’t qualify for a credit card.
You want predictable, fixed installment plans.
Choose a Credit Card if:
You need a flexible credit line with widespread acceptance.
You want to build a strong credit history.
You frequently travel and shop online for cashback and rewards.
Conclusion
Both BNPL and credit cards provide monetary freedom, although they have different objectives. BNPL is an excellent short-term alternative for managing expenditure, whilst credit cards offer long-term financial benefits such as credit score enhancement and rewards.
To make the best selection, consider your financial habits, payback ability, and the necessity to establish credit history. Choose prudently to prevent unnecessary debt and optimize your financial gains!