Is Buy Now, Pay Later Really Better for Me Than a Credit Card?

For many consumers, the ease and flexibility of spreading payments over a longer period of time makes “buy now, pay later,” or BNPL, plans appealing.

Add in the possibility for lower interest rates, and BNPL is becoming an increasingly popular alternative to using a credit card. According to a 2021 study by C+R Research, 56% of BNPL users surveyed said they prefer using BNPL over credit cards for these and other reasons.

BNPL definitely has advantages over credit cards for some consumers in some situations. But credit cards have advantages in others. Which option makes the most sense for you depends on several factors, including how much you’re spending, how much it will cost to carry the debt and how quickly you can pay it down.

Ask yourself these questions to determine which option, if either, is right for you.

How much can I afford to pay upfront?

Most buy now, pay later options require you to pay a portion of the total purchase upfront, while the rest is broken up into equal installments that are due over a set period of time — usually six weeks. This popular “Pay in 4” model is offered by most of the largest BNPL services, like Afterpay and Klarna.

Having to pay upfront for smaller purchases might not affect your immediate cash flow, but for larger purchases, it can be difficult to manage. For example, if you make a $2,000 purchase with a buy now, pay later loan, you’ll have to pay $500 immediately upfront. And the higher the total amount of your purchase, the steeper the required amount due at checkout will be.

Plus, if you take out multiple such loans at once, you might end up shelling out more cash than you can afford. (Four $1,000 loans around the same time requires $1,000 upfront in total, for instance.) According to a Barclays UK 2021 study, 36% of BNPL users surveyed admitted to using the loans to spend more than they can afford, and an equal number of users said they did not fully understand the ramifications of missing repayments.

Like BNPL loans, credit cards can also help consumers make purchases they don’t have the immediate cash for. But one main differentiator is that when you make a purchase with a credit card, you won’t be required to pay anything upfront. So if you charge a $2,000 purchase on a credit card, that amount will be added to your card balance — a portion of which will be owed at the end of the monthly billing cycle. (More on this below.) Because you don’t have to pay any amount upfront when you make your purchase, paying with a credit card can lessen the initial financial burden of repayment.

How much time do I need to pay off my purchases?

If you make your BNPL payments on time and pay them in full, you won’t incur any interest or late fees. But if you miss your payments, there can be late fees charged and your debt could be sent to collections.

Similar penalties apply for missed credit card payments: Late payments can incur interest and late fees, and can negatively impact your credit score. However, an important distinction between the two financing options is that while you’ll only have a set period of time to pay off a BNPL loan, you can roll debt over on a credit card from month to month.

Credit card considerations

While it’s advisable to pay your balance in full every month to avoid incurring interest, larger purchases on credit cards might necessitate carrying a balance and paying it down monthly. But unlike most buy now, pay later loans, there’s no set time frame within which you’re required to pay off your total purchase. Rather, at the end of each monthly billing cycle, you’ll have a balance, of which you’ll be required to pay a monthly minimum, plus interest. This minimum will vary based on how much you owe and on your interest rate — typically 2% to 4% of your total balance, or a fixed amount anywhere between $25 to $35 if your balance is low.

Remember, however, that when you roll over your credit card balance and don’t pay in full, you’ll be charged interest — which can be high depending on your creditworthiness and how much debt you’re carrying. Plus, failing to pay the minimum monthly payment due can lead to a penalty APR, which is a hiked interest rate, and can also negatively impact your credit.

Note: If your purchase is particularly large and will take some time to pay down, consider a 0% APR credit card. Such options come with promotional periods, typically ranging from 12 to 18 months, during which you won’t be charged any interest. This can potentially be a better option than taking on debt from a buy now, pay later loan. Note, though, that 0% APR cards typically require good to excellent credit scores to apply. And once the interest-free period ends, you’ll be responsible for paying the card’s ongoing interest rate on new purchases, as well as any remaining balance left from the promotional period.

BNPL considerations

With a typical “Pay in 4” buy now, pay later model, borrowers have to pay 25% of the purchase upfront, and then the remaining 75% in three payments over the course of six weeks. Such short repayment periods can not only make it easier to default on the loan, but it also means you’ll have to pay larger sums. A minimum monthly payment on a credit card could make more sense if you can’t afford to shell out a large amount of money at once. For example, a $1,000 purchase on a credit card that you don’t pay in full right away, or roll over, might mean that you’ll pay at least $20 each month, not including your interest rate and assuming it’s the only purchase on your credit card. But a $1,000 purchase with a buy now, pay later loan will cost you $250 per installment. And if you miss one of those required payments, you’ll be penalized.

While some of the most popular “Pay in 4” BNPL services don’t charge interest, there are still varying fees associated with delinquency. Zip (formerly Quadpay) users, for example, are charged a late fee of $5, $7 or $10, depending on which state they live in. And in addition to being temporarily prohibited from using the service, if you miss an Afterpay payment, you’ll be charged a capped late fee starting at $10 and no more than 25% of the initial purchase price.

Additionally, there are longer-term buy now, pay later services that do charge interest, and these rates are often high. For example, Affirm can charge up to 30% APR depending on the store you’re making a purchase from and on your credit score. This is significantly higher than the average APR charged for cards that incur interest.

If you pay your loan off in the allotted six weeks, you’re off the hook and you won’t be charged any interest or fees. But because such short repayment periods can make it easier to default, consider whether you can afford to pay off your purchase within the fixed repayment time before opting for a buy now, pay later option. If you think you’ll need more time, you’re better off making your purchase with a credit card instead.

Note: In February, one of the three major credit bureaus, Equifax, announced that it would be the first to include buy now, pay later repayments on its credit reports. According to Equifax research, inclusion of on-time BNPL payments could increase credit scores. But late payments, on the other hand, could have a negative effect.

Which option am I eligible for?

When you apply for a credit card, the issuer performs a hard pull: It takes a survey of your credit history and scores, which indicates how risky of a borrower you are. When you apply for a BNPL loan, however, there isn’t a hard credit check performed to determine your eligibility to get one, and your score isn’t affected. This makes it easier for those with no credit or poor credit to be approved for a loan.

To this end, if you are unable to qualify for a credit card due to a poor credit score and you have to make a necessary purchase but can’t afford to pay for it in full upfront, BNPL can offer access to flexibility that a credit card might not. But in such cases, it’s important to look for a servicer that charges no interest, like Afterpay and Klarna, and to make a plan for repayment.

Note that because BNPL servicers are not performing hard pulls, it means that applicants are not screened based on their ability to carry or repay a new loan. So even if you are juggling multiple BNPL loans, you’ll usually still have access to opening additional loans. That makes it easier for users to take on more than they can handle and can lead to a cycle of debt.

It’s important to survey your finances before opting for a loan. And if you’re already carrying multiple loans, avoid taking on more debt by applying for a new BNPL plan.

Funto Omojola writes for NerdWallet. Email:

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5 Credit Card Red Flags to Avoid

Choosing the right credit card can be difficult, especially if you have poor credit (FICO scores of 629 or lower) or are new to credit cards entirely.

Plenty of cards can help those with limited choices, but some options — including certain unsecured credit cards for bad credit — are more costly and potentially more perilous than others. These “subprime specialist issuer” cards, as they’re often referred to, might be easier to qualify for, but they typically come with soaring rates and unnecessary fees that make them quite expensive to carry.

To end up with the right card in your wallet, it’s important to steer clear of predatory options. Here are five red flags to look out for.

1. Excessive fees

An annual fee on a credit card may not be ideal, but it doesn’t necessarily qualify as excessive. In fact, if you have poor or thin credit or are unbanked, a card with an annual fee may be your best and only option. Annual fees can also be worth paying if the card offers ongoing rewards, perks or other incentives to offset it.

Still, the yearly cost of holding onto a card shouldn’t be outlandish. Many decent ones for those with poor or thin credit offer a relatively low and manageable annual fee, often $50 or below.

But annual fees aren’t the only costs you can incur. Many so-called fee-harvester cards feature charges that can sneak up on unknowing consumers. Examples include application fees, activation and processing fees, and monthly maintenance or membership charges. These fees are often unnecessary and avoidable, but they are common on some unsecured cards for bad credit — meaning cards that don’t require a security deposit as collateral.

Before deciding on a card, be sure to read its terms and conditions so that you’re aware of what fees you may face.

2. Exorbitant interest rates

If you don’t carry a balance month to month, then a credit card’s interest rate is irrelevant; you’ll never owe any interest. But financial hardship and other factors can make it necessary to carry debt, which can be convenient but expensive.

As of November 2020, the average annual percentage rate for cards that accrued interest was 16.28%, according to the Federal Reserve. The rate you’ll be charged will depend on your creditworthiness, which indicates to the card issuer the amount of risk it is taking by extending you credit.

Generally speaking, the lower your credit scores, the higher your APR will be. But some credit cards aimed at consumers with poor credit charge APRs that are truly dizzying, sometimes up to 30% or more.

Credit cards that offer low or promotional interest rates typically require good credit (FICO scores of at least 690), but there are options for others that can make carrying a balance less costly:

  • Secured credit cards require you to make a refundable security deposit that will act as your credit limit — and your collateral. They can be easier to get because the bank is taking less of a risk on you. Secured cards, especially those that also charge annual fees, sometimes have lower ongoing APRs.
  • Depending on your credit score, you may be able to qualify for a card from a credit union, which may offer lower interest rates than products from major banks. Still, to get such a card, you’ll need to join the credit union, and there may be restrictions on membership.

3. Low credit limits

Some starter credit cards or unsecured cards for bad credit will advertise a credit limit range. The limit you qualify for will depend on your creditworthiness, but it’s worth understanding how a low credit limit can hamper you.

For starters, if the card also charges an annual fee, that often means you’ll need to subtract that amount to determine your actual credit limit. For instance, if you’re approved for a credit limit of $300 on a card with an annual fee of $50, then your initial credit limit is really $250 until you pay that fee. Essentially, you’re in debt immediately, and you’ve lost about 17% of your credit limit before you even use the card for the first time.

A low credit limit can also have implications for your credit utilization ratio, which is a significant factor in your credit scores. Credit utilization is the amount you owe as a percentage of your available credit. So if you have a $1,000 credit limit and a $500 balance on the card, your credit utilization is 50%.

A typical recommendation is that you keep your credit utilization below 30%. But in general, the lower that percentage, the better for your credit scores.

And lastly, if the card earns rewards, a low spending limit means a low limit on how much in rewards you can rack up.

Nerd tip: Some credit cards advertise the possibility of an eventual credit limit increase with responsible credit card use.

4. Partial credit reporting

For building credit, you’ll ideally want a card that reports to all three major credit bureaus — Equifax, Experian and TransUnion. These bureaus compile the credit reports that form the basis of your credit scores.

Cards with incomplete credit reporting can be problematic because you won’t necessarily know from which bureau a future lender might be pulling your credit report.

For example, if a lender pulls reports from TransUnion, but your card reports only to Equifax and Experian, then the lender may not be able to see your credit activity.

5. No upgrade path

If you use your secured or starter card responsibly, it can strengthen your credit. At that point, you may be looking to transition to a credit card with better terms, richer rewards or more generous perks. To that end, it’s preferable if your existing card makes that an easy process.

The best credit cards for poor credit — primarily secured cards — typically offer upgrade paths, either automatically (with responsible card use) or upon request. This means you may eventually qualify to “graduate” to a better card within that issuer’s family of products without having to close your existing account. And if your account is in good standing when you upgrade, you’ll get your deposit back.

Cards that don’t offer a path to upgrade can still be useful. But in the long run, you’ll be stuck with a product that you’ve outgrown, which can be particularly costly if you’re paying an annual fee. While you can choose to close the card outright, doing so can negatively impact your credit scores.

Funto Omojola writes for NerdWallet. Email:

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