Credit Card vs. Buy Now, Pay Later Programs: Make the Smarter Choice This Holiday Season

Credit Card vs. Buy Now, Pay Later Programs: Discover the Smarter Choice This Holiday Season | Photo credit: BCCL

New Delhi: Indians are scaling up buy-now plans to pay later to buy everything from washing machines to online vacations as the country’s longest holiday season begins.

With growing popularity, BNPL’s payments have increased by at least 20 to 30 percent in the past three months, according to fintech company executives. They are expected to increase by around 66% on an annual basis in India to reach $ 11.6 billion this year, according to a survey.

What is Buy Now, Pay Later?

Buying now, paying later is a type of short-term financing. These point of sale installment loans are offered by a number of companies. BNPL can be used at a variety of major retailers, which differ from plan to plan. Some credit card companies also offer installment payment terms for eligible cardholders. Each buy now, pay later plan is unique to its provider, but they generally share a few things in common.

These BNPL loans usually require an initial down payment representing a portion, say 25%, of the purchase amount. Beyond that, the balance must be paid in several installments over a period of a few weeks or a few months. Some BNPL services set the total number of payments at four, while others allow borrowers to choose their own payment schedule based on their financial health. In terms of cost, buy now, pay later, plans often charge no interest and no fees except late fees for missed payments.

How does the buy now, pay later model work?

This concept is not new. In fact, Indians have always known it in an earlier form of payment known as the Khaata system, in which customers pay the entire bill all at once, usually at the end of the month, instead of paying. every time they make a purchase. .

Although this system remains common practice in small towns and rural areas, a new twist has been added to the age-old concept of Khaata by digitizing it by these BPNL service providers.

BPNL allows customers to have a seamless shopping experience without having to disclose their bank details or go through multiple authentication steps every time they purchase something. Users can order food, groceries, medicine, etc., from hyperlocal merchants, etc., using the ‘buy now, pay later’ platform, and pay the collected amount later. .

How are credit cards different?

Like buy now, pay off loans later, credit cards can be used at retailers. However, they can also be used to pay for gasoline, diesel, utility bill payments, and other types of expenses. If the cardholder pays their balance in full each month, they will owe no interest.

Credit cards vs BPNL: the better choice

While BNPL options only apply to a specific purchase from a specific merchant, credit cards can generally be used anywhere to make many types of purchases. If you have a credit card, you must pay at least the minimum amount due at the end of the month. However, with buy now, pay later, you might have a three, five, or 12 month option. This means that while BNPL can offer more flexible terms, credit cards will generally offer more flexible acceptance.

BNPL’s interest rates and fees vary widely. Some options bear no interest or fees, making it essentially free financing for the consumer. This is possible because BNPL providers always make money on merchant fees embedded in the product price, just as payment networks do on interchange fees for credit cards. They either have a fixed cost or no cost and are very straightforward in showing you how much it will cost.

The longer-term loans offered by BNPL – which can last up to 48 months – typically carry a similar interest rate to a traditional personal loan. However, unlike a loan or credit card, many BNPL providers do not verify credit when approving buyers, making it easier to access finance.

Credit card issuers, on the other hand, are likely to always withdraw your credit when you apply, so depending on your credit scores, this may not be an option for you. If you already have one and plan to use it to finance a purchase, be aware that credit card interest rates are generally variable and tend to be quite high.

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