Credit Card vs Buy Now Pay Later: Which is a better option?

In recent years, Buy Now Pay Later (BNPL) has been gaining popularity among customers, especially among the youth. The credit instrument allows buyers to pay for purchases later, often an interest- free period in the offering. Several banks and fintech companies have started providing this payment option to customers.

At first glance, there seems to be little difference between BNPL and credit cards. But, there are some differences between the two financial tools that the customers must know before utilising the credit facility.  

How are credit cards and BNPL different?

The tools differ on the basis of fees, process, interest free period and credit on offer.

Fees: BNPL does not have associated fees like processing fees, joining charges or annual fees. On the other hand, credit cards include certain charges like processing, joining and annual fees.

Process: The process for getting a credit card is more complicated compared to BNPL. Individuals have to submit their credit score, financial documents and identity proof for a credit card. For BNPL, only a Know Your Customer (KYC) process is needed.

Interest rates: BNPL charges a lower interest rate than most credit cards. With BNPL, consumers get an interest-free period of 10-30 days to pay back the entire due without any penalties. In case they default on the transaction, the penalty levied will be based on the amount utilised.

Credit limit: BNPL cannot offer more than Rs 60,000 to shoppers due to the guidelines of the Reserve Bank of India. For credit cards, there is no such limit. The amount of credit available depends on the lender’s analysis of a customer’s financial history and ability to repay a loan.

Credit card vs BNPL: Which is better?

It depends on what kind of a deal you are looking for. You need to compare the advantages offered by both credit card and BNPL and then choose an option. In some cases, you might find that a BNPL may be a better choice for you on the basis of interest rate and the lack of extra fees. If you need a higher credit limit, a credit card may turn out to be a better choice. Before opting for either of the two, make sure to read the specific terms and conditions of the credit card or the pay later service.