And customers love BNPL, spending $120 billion through these programs in 2021,per GlobalData.
According to Paul McAdam, senior director of banking and payment intelligence at J.D.
But credit cards offer the same benefit, right?
How do buy now, pay later services work?
(And do businesses bake those fees intoinflated prices?)
“Anytime retailers make the process of purchasing more convenient for the consumer, consumers will spend more money.
It’s human nature.”
For online purchases, the BNPL tool will usually be built into your shopping cart.
Most BNPL services use four payments over six weeks, whileAmazonbreaks it up into five payments over four months.
One big detail is that BNPL is all downside and no upside for yourcredit score.
Whilemissed payments and defaulted accountswill bring your score down, you’ll get no credit for your on-time payments.
How are credit cards different from BNPL services?
Technically, credit cards have the equivalent of BNPL functionality mandated by US federal law.
That means you get free baked-in BNPL forat leastthree weeks, half of the usual BNPL term.
After that, however, the interest comes rolling in on credit cards.
As of March 15, the average APR for credit cards is 20.04%,according to Bankrate.
Credit cards with0% intro APRperiods are a big exception that can often trump BNPL options.
One advantage for credit cards is that all your purchases are tracked in one place.
Credit card BNPL services also may have a broader range of options for repayment.
There might be a fee involved, or interest charged for longer payment terms.
Regardless, it’s worth investigating your own credit card provider’s options before purchasing with a new service.
How to decide between a credit card or buy now, pay later?
BNPL services provide wider accessibility and detailed information on the exact payments for your specific purchases.
Credit cards in 2022 have average late fees of $30,according to CreditCards.com.
Also, the conventional biweekly payments might line up well with your paycheck periods.
However, there are a few downsides.
If you’ve got room on your credit card, you’re quite assured your purchase will go through.
You’ll also need to track all your BNPL purchases separately, potentially with multiple accounts.
“About 1.73% of credit card company debts are 30 days or more late.
BNPL debt can only hurt your credit score, not help it.
