Credit Cards or BNPL: Which short-term financing option is right for you?

Short-term finance options have increased in popularity in the fast-paced world of today. Credit cards and Buy Now, Pay Later (BNPL) services are among the most popular options. Let's examine the main distinctions between these two choices so that you may make well-informed decisions regarding your financial requirements.

What are credit cards?

Financial companies issue credit cards, which allow consumers to pay for purchases up to some limit. With time, the cardholders can clear the amount with interest in most cases on the residual balance. Credit cards have several advantages apart from being convenient, such as offering travel insurance, purchase protection, and rewards programs.

Benefits of credit cards

• Widespread acceptance: Credit cards are very adaptable because they are accepted by the majority of retailers in the world.
• Creates credit history: Your credit score can be established and raised with responsible use.
• Rewards & perks: Several credit cards are offered with rewards that include travel miles, points, cash back, and offers to exclusive deals.

Drawbacks of credit cards

• High interest rates: In case, if the balance is not paid off straight away, carrying on the balance might incur big time interest charges.
• Annual fees: Some credit cards have annual fees if not used wisely that would offset the benefits.
• Credit reports: Based on your credit worthiness, approval often requires conducting a credit report.

What is BNPL?

It is known as Buy Now, Pay Later or BNPL and gives the customer the facility of spreading the cost over a specific period of time; often in instalments, while working like a mini-loan to facilitate the process of making a weekly or monthly payment in place of a conventional credit card.

Benefits of BNPL

• Interest-free periods: All BNPL services have very short interest-free instalment plan periods.
• Easier approvals: The application procedure for BNPL is quicker, simpler, and more credit checks are done on customers.
• Fixed repayment programs: Repayments are spread out evenly in the budget.

Drawbacks of BNPL

• Less utility: BNPL services are accessible only to specific customers and merchants.
• Risk of spending too much: The convenience makes impulsive purchases and numerous recurring payments likely.
• Impact on credit and late fees: In case you miss payments, high late fees may be assessed against you, and if the credit bureaus are informed, your credit score may be negatively affected.

BNPL vs. credit card

Your choice depends on your needs and spending habits. Consider these guidelines:

Choose for using a credit card when:

1. A flexible credit limit is required for various purchases.
2. You are looking to build or improve your credit history.
3. You enjoy using a widely accepted payment method for both physical and virtual purchases.
4. You will avail yourself of rewards, bonus, and other unique rewards.

Choose for BNPL when:

1. For some purchases, you prefer interest-free payment options.
2. You have a short credit history and are just starting to build credit.
3. For predictable, occasional expenses, you want low-cost instalment plans.
4. BNPL services offer attractive discounts or deals from your favourite merchants.

In conclusion, both credit cards and BNPL services have advantages and disadvantages. Credit cards have plenty of advantages and flexibility to be used but improper usage can lead to high-interest debt. BNPL services are attractive to make small interest-free purchases. Ultimately, it's up to your financial status, spending patterns, and the type of purchase you make that determines which one you'll need.

(Note: Using a credit card carries its own set of risks)