Deciding when to use a credit card vs. Buy Now, Pay Later for a purchase
Quick insights
- Buy Now, Pay Later (BNPL) is a payment option that spreads the cost of large purchases over time, offering payment plans that can help with budgeting.
- Putting large purchases on a credit card may provide rewards, protections and credit building opportunities.
- When using a credit card, having a plan to pay off large purchases may help you avoid interest charges.
BNPL is a financing option that enables consumers to make purchases and pay for them over time, often in installments. Typically offered by retailers at the point of sale, BNPL services can be integrated into the checkout process both online and in stores.
Much like a credit card, BNPL enables the customer to pay for their purchase by using credit. You may have a choice to use BNPL or a credit card when making a purchase.
Read on for factors to consider when choosing between them.
How does Buy Now, Pay Later work?
BNPL plans generally involve splitting the purchase amount into equal payments, with the first payment due at the time of purchase and subsequent payments due over the following weeks or months. BNPL providers may require that a specific portion is paid up front, often 25% of the purchase price.
A traditional BNPL product tends to be offered when you check out through an online storefront. Because BNPL is a form of credit, there may be fees if you make a late payment or otherwise break the associated terms and conditions.
Buy Now, Pay Later plans on a credit card
In addition to offering a line of credit, credit card issuers may offer a BNPL service for cardmembers. This feature allows a cardmember to pay off a larger purchase using set payments and typically has a lower interest rate than their credit card’s standard APR.
For example, Chase Pay Over Time® is a feature on some Chase credit cards that enables eligible cardmembers to pay off large purchases with a fixed monthly payment plan. This service typically involves a fixed interest rate in the form of a monthly fee included with each payment.
When might Buy Now, Pay Later make sense?
BNPL may be suitable for those who want to spread out the cost of a large purchase while limiting interest, especially for short-term financing needs. It may be beneficial for those who do not qualify for credit cards or prefer not to use them, as BNPL often has less stringent approval requirements.
Benefits of using a credit card for purchases
There may be situations when it’s preferred to use a credit card over a BNPL option. Using a credit card for purchases may provide the following benefits:
- Rewards: A rewards credit card may enable consumers to earn points over time, which may then be redeemable for rewards like cash back or airline miles.
- Protections: Credit cards often include some form of fraud protection or may have purchase protections that apply. Using your card to make a purchase could potentially provide protections that BNPL options do not.
- Building credit: Credit cards can help build your credit history. Having a history of on-time payments may have a positive impact on your credit score.
A plan to pay off your purchase may take into account how much interest you’ll pay, how long it will take and the size of your payments. Paying off the balance sooner generally results in less interest owed.
When making a large purchase that you won’t pay of within one billing cycle, using a credit card with a low interest rate—or an introductory offer with an even lower rate—may also help reduce interest charges.
Considerations when using BNPL
While BNPL is an option to pay off larger purchases, there are a few things you may want to keep in mind before choosing this payment option over using a credit card:
- Payment flexibility: Credit cards generally give a choice of paying the minimum amount due or another payment amount. You can typically make BNPL payments any time ahead of the due date, too, but you may have less flexibility in terms of scheduling when to pay and how much.
- Fees: While some BNPL products don’t charge interest, there may be plan fees and other fees, like late fees for missed payments. Reading the terms and conditions can help you determine how much you may pay in fees when using a BNPL service.
- Credit impact: Note that missing payments will affect your credit score.
In summary
BNPL is a payment option that may enable you to pay off a larger purchase over time. This option may be suited for larger purchases that you cannot pay off in full at the end of a credit card billing cycle.
Using a credit card for larger purchases may provide purchase protections and earn rewards. However, if you don’t have a plan to pay off that purchase, you could end up paying interest. With a BNPL loan, you’ll have a repayment plan with fixed payments.
