Buy Now, Pay Later (BNPL) can be classified as a 0% installment loan that is often paid in four installments. A credit card, on the other hand, gives you access to revolving credit that allows you to borrow money up to the set credit limit every month.
Most credit cards also offer installment plans now. This means that you no longer have to rely on making minimum payments and the steep interest rates that come with them when financing a purchase with a credit card.
Both BNPL and Credit Cards can be used for short-term and long-term financing. However, these two options differ in approval rates, interest rates, additional fees, and financial risk.
Which option is right for you? It depends on which option matches your goals and financial situation. So, let’s look deeper at BNPL and Credit Card services to see which is the best for your situation.
Buy Now, Pay Later vs. Credit Card: An Overview
Credit Cards are old. Like retirement age, old. The first credit card was called the Bank Americard (yes, they really called it that), and it was introduced in 1958 by the Bank of America.
This is an important point because a decade after the Bank Americard was released, lawmakers started regulating credit cards, starting with the Truth in Lending Act.
It didn’t take long before more legislation was passed. In fact, four more laws were passed to regulate credit cards in the 1970s alone:
- The Fair Credit Reporting Act of 1970
- The Fair Credit Billing Act of 1974
- The Equal Credit Opportunity Act of 1974
- The Fair Debt Collection Practices Act of 1977
All these regulations provide consumers with the financial protection that they sorely need. However, all this red tape also means that credit card companies have become quite selective and are slow to approve applications from people with near-prime or sub-prime credit scores.
BNPL: The New Kid on the Block
Klarna kicked off Buy Now, Pay Later in the US in September 2015, followed by Sezzle in August 2017, Affirm and Afterpay in 2018, and PayPal Pay-in-4 in August 2020.
BNPL wasn’t immediately popular, though. In fact, you could argue that if the COVID-19 Pandemic hadn’t forced people to stay at home for months on end, BNPL might not have experienced such success.
However, the pandemic did happen, and from 2019 to 2021, the number of BNPL loans grew by 1,071%. One big reason why people started choosing BNPL over credit cards is regulation.
It took the US government ten years before they started regulating credit cards. So, it might take a decade or longer before legislation is passed to regulate BNPL.
Even though BNPL wasn’t initially covered by the Truth in Lending Act (TILA) due to a provision that states that financial services with no assessed interest and require four or fewer payments are exempt from it, the Consumer Financial Protection Bureau (CFPB) issued an interpretative rule in May 2024.
This interpretative rule states that BNPL providers are “card issuers” under Regulation Z (another name for TILA). This means that the CFPB is now treating BNPL providers as credit card issuers and that they’re “subjected to some, but not all, of Regulation Z’s credit card regulations.”
Installment Loans vs. Revolving Credit
Before we get into the pros and cons of BNPL and Credit Cards, it’s important to note the main difference between them, which is the type of credit that they provide.
BNPL financing comes in the form of an installment loan. You pay 25% of the product’s price upfront, then pay the rest of it over a couple of weeks or even months.
Credit Cards, on the other hand, give you access to a monthly credit limit. Any purchase you make using your credit card can be paid in full at the end of the billing cycle. Or you can choose to make the minimum payment set by your bank and let your debt be carried over to the next billing cycle.
Making minimum payments on your credit card isn’t advisable, however, due to the steep interest rates and the negative effect of high credit utilization on your credit score.
With this in mind, we’ll be comparing BNPL with the installment plans offered by credit cards. We will also compare the most popular BNPL plan to some Intro 0% APR credit cards.
Credit Card Application & Approval
Banks don’t often issue credit cards to people with low credit scores, low income, or high monthly payments in comparison to income. However, among these factors, credit scores have the most weight.
According to the 2023 Consumer Credit Card Market Report of the Bureau of Consumer Financial Protection, these are the approval rates for general-purpose credit cards according to credit scores in 2022:
| Credit Score Range | Approval Rate |
| Superprime | 86% |
| Prime | 63% |
| Near-Prime | 41% |
| Sub-Prime | 17% |
| No Credit | 20% |
Based on this data, people with near-prime, sub-prime, and near-prime credit have a better chance of successfully predicting a toin coss than getting approved for a general-purpose credit card.
BNPL Application & Approval
BNPL is a point-of-sale financing option, which means you can literally apply for BNPL as you check out, and chances are, you’ll get approved instantly. In fact, most BNPL providers don’t even do a hard credit check, and not all of them do a soft check either.
This means that even people with sub-prime credit have a good chance of getting approved for BNPL financing. The reason why BNPL providers are so cavalier when underwriting is that the average BNPL loan is just $135.
Some could argue that the success of BNPL is due to how accessible they are and how fast they approve loans.
Credit Card APR and Fees
Credit Cards disclose their interest rates as Annual Percentage Rate (APR), which is a mandate from the Truth in Lending Act.
But all it means is that Credit Card companies have to disclose the yearly percentage interest rate they charge, which is inclusive of additional fees but is exclusive of compounding interest.
According to the Federal Reserve, the average credit card APR in 2023 was 22.15%. We don’t have to tell you that that’s a terrible deal.
Luckily, credit cards have been around for a long time, and in that time, they have generated a multitude of additional services and card variations.
Intro 0% APR Credit Cards
As we’ve noted earlier, using a general-purpose credit card to finance a purchase that takes more than one billing cycle to pay off is a bad idea.
If you really want to use a credit card to finance a purchase you have to make minimum payments on, then an Intro 0% APR Credit Card is for you. And just as its name suggests, this credit card has a 0% APR during the introductory period, which is usually 15-21 months.
Just be sure to make all your minimum payments on time though. Since most of these cards revert back to their normal APR if you miss even one payment.
Credit Card Installment Plans
Some banks offer installment plans that you can use to pay off your credit card balance. In most cases, the fees or interest rates on these installment plans are going to be significantly lower than what it would cost you to make minimum payments.
Banks that offer installment plans on credit card balances are:
- American Express
- Citibank
- Chase Bank
- U.S. Bank
American Express Plan It
American Express gives its customers the ability to pay off their balance in monthly installments of 3, 6, or 12 months (eligibility for long-term plans is based on account history).
This option allows customers to pay a fixed monthly fee of $9 for every $1,000 of debt (0.90% of the Principal amount).
Citi Flex Loan
Citi’s installment plan, on the other hand, charges a fixed APR that’s typically in the same APR range as your credit card.
The advantage of their option, though is that repayment duration is from 12 – 60 months. However, you could argue that the longer duration is a negative for those with sub-par APR on their cards.
BNPL Interest and Fees
Almost all BNPL pay-in-four plans are going to be 0% interest. However, if you choose a payment plan that requires more than four installments, you can get charged up to 36% APR (which is more than double the average credit card APR).
Whether or not you can get charged late fees also depends on the BNPL provider. This can make managing payments between different BNPL providers quite difficult.
Luckily, we’re here to help clarify things. Here is a list of BNPL providers, their fees, and APR on monthly plans:
| BNPL Provider | APR for Monthly Plans | Fees |
| Zip | 0%* | Up to $10 |
| Klarna | 19.99% | Up to $7 |
| Paypal | 9.99% – 35.99% | No Fees |
| Sezzle | 5.99% – 34.99% | Up to $15 |
| Afterpay | 6.99% – 35.99% | Up to $8 |
| Affirm | 0% – 36% | No Fees |
*Zip charges an installment fee instead of interest (up to $7.50)
Financial Risk
The final but arguably the most important factor you should consider is the financial risk of the financing option that you choose.
While it’s true that countless people have fallen into the vicious cycle of paying minimum payments on an ever-increasing credit card balance, there are numerous guardrails in place to prevent this from happening.
In fact, you were probably surprised at how low credit card approval rates are, even for people with good credit. And these rates have continuously gone down through the years.
One reason for this trend is that banks report your credit history to the credit bureaus. And they will pull a hard credit check to see if you’re overextended financially before they make their decision to approve your application.
Most BNPL providers currently don’t furnish data to the credit bureaus. This means you can apply for BNPL loans from various providers and can be approved for all of them even if you don’t have the means to pay them back.
Summary
- If you’re looking for a short-term installment loan that’s payable in four installments, BNPL clearly wins.
- But if you’re eligible for a credit card and you can pay off your purchase within the billing cycle, then Credit Cards are great options, especially if your card allows you to earn points.
- For long-term installment loans, Credit Card Offered Installment Plans and 0% Intro Credit Cards take the cake.
- Credit cards and installment plans also offer the advantage of building your credit if you make your payments on time.
