Buy Now, Pay Later vs. Credit Card: Which Is Right For You?

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bnpl vs credit card
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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 to make 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:

  1. The Fair Credit Reporting Act of 1970
  2. The Fair Credit Billing Act of 1974
  3. The Equal Credit Opportunity Act of 1974
  4. The Fair Debt Collection Practices Act of 1977

All these regulations provide consumers with the financial protection that they sorely need. But 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 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.

But the pandemic did happen and from 2019 to 2021, the number of BNPL loans grew by 1,071% As to why people started choosing BNPL over credit cards, one big reason is regulation.

It took the US government 10 years before they started regulating credit cards. So it might take a decade or longer before legislation is passed to regulate BNPL.

BNPL also isn’t covered by the Truth in Lending Act (TILA). This is due to a provision that states that financial services with no assessed interest and require four or fewer payments are exempt from it.

BNPL financing is often a 0% interest installment loan that’s paid in four installments. So you could say that BNPL terms were designed specifically to avoid red tape.

This means that BNPL providers can quickly (oftentimes instantly) approve loans. And anything instant in our modern world gets a huge advantage.

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 also be comparing BNPL with the available installment plans offered by Credit Cards. As well as comparing BNPL to some Intro 0% APR credit cards.

Application Process and Approval Rates

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. But among these factors, credit scores have the most weight.

And according to the 2021 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 2020:

Credit Score Range Approval Rate
Superprime 74%
Prime 48%
Near-Prime 30%
Sub-Prime 13%
No Credit 15%

Based on this data, people with near-prime or sub-prime credit have a much 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’re checking 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 Interest Rates and Fees

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 2021 was 16.44%. 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 balance are:

  1. American Express
  2. Citibank
  3. Chase Bank
  4. 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 than 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
1.    Zip 0% Up to $10
2.            Apple Pay Later 0% No Fees
3.            Klarna 0% – 29.99% Up to $7
4.            Paypal 9.99% – 29.99% No Fees
5.            Sezzle 5.99% – 34.99% Up to $15
6.            Afterpay 0% – 35.99% Up to $8
7.            Affirm 0% – 36% No Fees

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.

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Frequently Asked Questions

1. How is BNPL different from a credit card?

The main difference between BNPL and Credit Cards is that BNPL is an installment loan while Credit Cards give you access to revolving credit.

2. What is the advantage of BNPL over a credit card?

BNPL pay-in-four installment plan is a 0% interest loan that almost anyone can apply for. Intro 0% APR Credit Cards can offer something similar but you need an excellent credit score to apply for these.

3. What is the downside of BNPL?

BNPL allows people to overextend financially because they don’t do hard credit checks, nor do they furnish data to credit bureaus. Long-term BNPL plans also have worse APR than credit cards and their offered installment plans.

4. Can I use BNPL with a credit card?

Yes, but doing so is not advisable. The main draw of BNPL is their 0% interest rate. So paying with a credit card mitigates that if you can’t pay it off at the end of the billing cycle.

5. Do BNPL services affect my credit score?

Yes, it can affect your credit score in two ways. If you miss your payments, you could get sent into collections and they will report your missed payments to the credit bureaus.

You can also build credit history with BNPL if you make your payments using the Cushion App.

Recommended article: Does Buy Now Pay Later Help Or Harm My Credit Score?

6. Are BNPL services interest-free?

BNPL pay-in-four plans are interest-free. Their long-term monthly plans, however, are not.

7. Are credit cards better for long-term financing?

Yes, especially if you can qualify for Intro 0% APR Credit Cards or their offered installment plans.


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 their offered installment plans also have the advantage of building your credit if you make your payments on time.

Luckily, you can build your credit profile with BNPL if you use the Cushion App to make your BNPL payments. Cushion also has a calendar view so you keep track of what’s due and when, in one place, automatically

Better yet, by reporting your BNPL payment history to the credit bureaus, you mitigate the inherent financial risk of using BNPL.

Last Updated on January 01, 2024
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Disclaimer: The information provided in this website is for educational purposes only and should not be considered as financial advice. Consult with a financial professional for personalized guidance regarding your specific situation.

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