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- I’m considering giving up credit cards and relying on buy now, pay later (BNPL) services instead.
- BNPL allows you to pay off purchases in installations over time, sometimes with no interest.
- I learned that while BNPL is good for some purchases, a credit card offers more benefits.
- Read Insider’s guide to the best cash-back credit cards.
High up on my to-do list is the action item of finally breaking up with my credit card. I’ve been loyal to one, and only one, personal credit card for over six years. Not only have I outgrown the benefits and rewards the card offers, but I’m eager to search for new options that complement my lifestyle a little better.
After making a mess of my finances in my twenties, I have cleaned up my act and my spending habits in my thirties. I no longer carry a balance on my credit card and only spend what I can pay off that month. Because of that behavior, I wondered if I even needed a credit card or if I could just rely on the buy now, pay later (BNPL) services a lot of online retailers offer these days.
What is buy now, pay later?
13.74% – 23.74% Variable
Good to Excellent
13.99% – 23.99% Variable
Good to Excellent
13.24%-19.24% variable APR
Good to Excellent
Buy now, pay later (BNPL) lets you buy items without paying the total cost upfront. Instead, you can pay in installations over a set number of weeks or months. Sometimes, these payments are interest-free. For example, if my total purchase is $500, I can pay $100 a week, for five weeks, without getting any fees tacked on.
A recent study done by Credit Karma found that 40% of US consumers have used a BNPL service. Not only does it seem like a great way to spread out payments, but you don’t have to worry about the hefty interest rates that credit cards often charge you if you can’t pay your balance off that month.
Read more: 4 boxes to check before using ‘Buy Now, Pay Later’
A recent report found that 45% of BNPL users found this payment method easier than using a credit card and paying off the lump sum of the bill on a monthly basis. However, there is a penalty if you do miss one of the installment payments, and according to a Credit Karma study, 38% of US consumers who used BNPL have missed more than one payment.
So while BNPL seems like a good alternative to a credit card, as long as you can pay off each installment on time, I wondered what other impact factors there were to consider.
BNPL is a good alternative to a credit card for some purchases
If you’re considering going with a BNPL service over a credit card, perhaps it can make sense for some purchases.
Brittney Castro, a CFP, says that BNPL can be a good option for people who want to make a big purchase but don’t have the cash on hand to pay for it all at once since these services spread payments out over time. However, Castro says to be aware of the terms of these services because they can differ.
“There are a number of different apps now that offer buy now, pay later services and each is structured differently. For example, some charge fees and interest, so make sure you’re aware of the terms and conditions before using them,” says castro.
Read more: The best low interest and 0% APR credit cards
Every BNPL service has a different fee structure, and some do charge interest. For example, Afterpay does not charge interest but does charge a fee of $8 after a missed payment reaches 10 days past due. Affirm has rates that vary from 0% to 30% APR, with terms up to 12 months and zero late fees. Credit card fees vary as well, from annual fees to interest rates. Be sure to compare your options before deciding the right method for you and a big purchase.
It’s also important to approach the payment installation opportunity that comes with BNPL services in a strategic way.
Dylan Orosz, a CPA, says if you want to take advantage of the structure of BNPL, you have to have a plan to make payments and be sure that you will be able to pay them.
There are more benefits with a credit card
For now, Howard Dvorkin, a CPA, says that credit cards still offer more value that BNPL services can’t replace.
“While in some cases BNPL offers free financing with no interest or fees, the service lacks the ability to give you any rewards you would obtain for your purchase from using a credit card like cash back, points, or miles,” says Dvorkin.
Also, Dvorkin says it’s important to take into consideration the impact on your credit score. While missed payments on both a credit card bill and your BNPL balance can negatively impact your score, only on-time payments via your credit card can benefit you.
Read more: Amex, Citi, and other banks let you pay off big purchases over time for a fee — but make sure you do the math before you splurge
“Any positive payments on your credit card will get reported to the credit bureaus and help establish your credit, whereas positive payments on your BNPL loan won’t,” says Dvorkin.
Finally, if you’re looking to spend money on a variety of things, Dvorkin reminds consumers that since credit cards have been around longer, they’re more convenient and accepted as payment in most places compared to the few options you have with BNPL.
“So BNPL won’t replace credit cards but instead, continue to give consumers another option in terms of financing,” says Dvorkin. “Many credit card providers have embraced the service and even started offering their own versions of BNPL.”