Credit Card vs. “Buy Now, Pay Later”: Know the smarter choice this holiday season

Credit Card Vs. “Buy Now, Pay Later”: You Know The Smarter Choice This Christmas Season | Image credit: BCCL

New Delhi: Indians are tightening their installment plans to buy everything from washing machines to vacation travel online as the country’s longest Christmas season begins.

With the rise in popularity, BNPL payments have increased by at least 20-30% in the past three months, according to fintech company executives. According to a survey, they are expected to increase by about 66% to $ 11.6 billion this year in India.

What’s Buy Now, Pay Later?

Buy now, pay later is a type of short-term financing. These point of sale installment loans are offered by a number of companies. BNPL can be used at a variety of large retailers, which vary from plan to plan. Some credit card companies also offer installment payment agreements for authorized cardholders. Each “buy now, pay later” plan is unique to its provider, but in general they have some things in common.

These BNPL loans usually require an upfront payment which is a portion, such as 25%, of the purchase amount. Thereafter, the remaining amount must be paid off in installments over a period of a few weeks or a few months. Some BNPL services set the total number of payments to four, while others allow borrowers to choose their own payment plan based on their financial situation. In terms of cost, “buy now, pay later” plans often do not charge interest or fees, with the exception of late fees for missed payments.

How does the “buy now, pay later” model work?

This concept is not new. In fact, Indians have always been familiar with an earlier payment method, the Khaata system, where customers would pay the entire bill at once, usually by the end of the month, rather than paying with every purchase.

While this system is a common practice in small towns and rural areas, the age-old concept of Khaata has been reinterpreted through digitization by these BPNL service providers.

BPNL enables customers to have a seamless shopping experience without revealing their bank details or having to go through multiple authentication steps each time they make a purchase. Users can order groceries, groceries, medicines, etc. from hyper-local merchants, etc. through the “Buy Now, Pay Later” platform and simply pay the amount collected later.

How are credit cards different?

Like Buy Now, Pay Later, Loans can be used at merchants. However, they can also be used for paying for gasoline, diesel, paying utility bills, and other types of expenses. If the cardholder pays his balance in full each month, he does not owe any interest.

Credit Cards vs BPNL: The Better Choice

While BNPL options only apply to a specific purchase from a specific merchant, in general credit cards can be used anywhere to make many types of purchases. If you have a credit card, you must pay at least the minimum amount due at the end of the month. However, if you buy now, pay later, you may have a three, five, or twelve month option. This means that while BNPL can offer more flexible terms, credit cards generally offer more flexible acceptance.

BNPL interest rates and fees vary widely. Some options are interest-free or fee-free, which makes financing essentially free for the consumer. This is possible because BNPL providers still make money from merchant fees anchored in the product price, much like payment networks with interbank fees for credit cards. They either have a fixed cost or no cost and show you very much in advance how much it will cost.

Longer term loans offered through BNPL – which can last up to 48 months – usually have an interest rate that is similar to a traditional personal loan. However, unlike a loan or credit card, many BNPL providers do not check creditworthiness when approving buyers, making it easier to access finance.

Credit card issuers, on the other hand, are likely to withdraw your balance every time you apply, so depending on your creditworthiness, this may not be an option for you. If you already own one and are thinking of using it to finance a purchase, be aware that credit card rates are usually variable and usually quite high.

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