Buy Now Pay Later Vs Credit Cards: Which is Better?
27 May 2024 4 mins Credit Cards
Both buy now, pay later (BNPL) and credit cards have their advantages and disadvantages, depending on your shopping habits and financial situation. Here’s a simple comparison to help you decide which one might work best for you in India.
What is Buy Now, Pay Later?
Buy now, pay later (BNPL) lets you purchase something today and pay for it over time in regular, interest-free installments. In India, companies like ZestMoney, LazyPay, and Simpl offer BNPL plans.
Key Points about BNPL
Installments: Pay in several installments (often three or four).
Getting approved for buy now, pay later (BNPL) is usually easier and faster than for credit cards.
You need to be at least 18 years old to use BNPL.
Usually, they only check your credit softly, so it won't affect your credit score.
BNPL plans often don't charge interest, but they might have fees like late fees or service fees.
For example, if you buy a ₹5,000 shirt with BNPL, you might pay ₹1,250 first, then three more payments of ₹1,250 each over three weeks.
What's a credit card?
A credit card lets you buy things now and pay for them later. If you don’t pay off the balance each month, you’ll be charged interest. Credit cards can also offer rewards like cash back, airline miles, or points.
Key Points about Credit Cards
Payments: Credit cards allow you to pay for purchases over time, but it's important to make at least the minimum monthly payment to avoid penalties.
Approval: Getting approved for a credit card involves a thorough credit check, which impacts your credit score positively or negatively.
Rewards: Many credit cards offer rewards such as cash back, points, or miles for using them for purchases.
Age Requirement: Must be at least 18 years old, but it’s harder to get a card if you’re under 21 without a steady income.
Fees: Can include annual fees, late payment fees, foreign transaction fees, balance transfer fees, and cash advance fees.
Example of Using a Credit Card
If you buy a ₹5,000 shirt with a credit card at a 24% annual percentage rate (APR), you can pay the full ₹5,000 at the end of the month or just the ₹500 minimum payment. If you only pay ₹500, you’ll owe interest on the remaining ₹4,500.
Comparing BNPL and Credit Cards in India
Age Restrictions: Both require you to be at least 18 years old. Teens can be added as authorized users on a parent’s credit card.
Ease of Access: BNPL plans are easier to get, especially if you have a low credit score or no credit history. Credit cards are harder to obtain and require a credit check.
Interest and Fees: BNPL plans often have no interest for short-term plans but can have fees. Credit cards charge interest if you don’t pay off the balance each month and can have various fees.
Credit Impact: BNPL usually doesn’t help build credit, but late payments can hurt your score. Credit cards report to credit bureaus and can help build your credit if used responsibly.
Consumer Protections: Credit cards typically provide stronger safeguards and clearer terms compared to BNPL arrangements.
Drawbacks of BNPL
Complexity in terms and fee structures.
Risk of accumulating multiple debts.
Late or missed payments can negatively impact credit scores.
Bottomline
Consider using a debit card or saving up for purchases if immediate payment isn't feasible. While BNPL can be interest-free and suitable for those without credit history, it doesn't contribute to building credit. Credit cards offer credit-building opportunities but carry the risk of debt and interest charges.
Select the option aligning with your financial circumstances and spending patterns, and review terms and potential fees diligently.
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