BNPL vs. credit card for purchases
With most BNPL agreements, you won’t pay any interest on your purchase, as long as you pay off your agreed repayment instalments on time. Similarly, with a credit card, you won’t be charged any interest, as long as you pay off your balance in full each month.
Both of these payment methods can incur high rates of interest if you miss payments. BNPL may have extra penalties.
Having a credit card means having access to credit you can use and repay over and over again. This can be handy as a longer-term solution to your purchase needs.
You could also be entitled to rewards with your purchases, such as air miles and cash back, when you pay with a credit card. Different providers offer different rewards, so it’s always worth comparing your offers when looking for a credit card.
Some credit card providers also offer incentives, like 0% interest on your purchases for an introductory period – these cards are called “purchase cards”. If you have some purchases in mind to make, either to buy something big or to cover some additional expenses, and you’d like an interest-free period in which to pay them down, it’s worth thinking about taking out a purchase card before you start spending. Again, it’s always worth comparing the offers you’re likely to be eligible for – to make sure you’re getting the best rates and rewards available.
You may, however, find it difficult to qualify for the purchase card of your choice if you don’t have the best score, since lenders will consider your income, current credit level of debt with other financial institutions and your credit report when evaluating applicants.
If your credit is less than stellar, you may find that you could be eligible for a BNPL agreement. Some BNPL agreements don’t require a hard credit check, and many that do, do not have a minimum score requirement.
It’s important to remember though, that BNPL agreements are specific to purchases, and are not a revolving line of credit where you can use the credit again when you’ve paid it back. You’ll also create a new BNPL agreement each time you make a purchase on credit, which means your credit report can quickly start to look crowded.
When to consider a BNPL agreement
- For a one-off purchase that you could use a little bit of extra time to pay off.
- When you’re confident you can comfortably pay off each of the agreed instalments.
- When you want to limit the amount of debt you take on.
When to consider applying for a purchase card
- Your credit is in good shape.
- You want more flexible repayments.
- You want a revolving line of credit (that you can reuse as you pay it off).
- You have some purchases in mind to make soon after getting the card, to benefit from an interest-free intro period
Bottom line
Choosing the right fit between a credit card and BNPL is important. Taking out one when the other is the better option could end up costing you more in the end.
Before applying for a purchase card or BNPL to make purchases on credit, it’s important to consider how much financing you’ll need in the long and short term, as well as the condition of your credit, to help make the best decision for you.