Buy now, pay later or by credit card: what’s right for you?


Until a few years ago, buying now, paying later meant using your credit card for your purchases. However, over the past few years, we’ve seen banks, e-commerce companies, and even fintech players offering programs to buyers called Buy Now, Pay Later (BNPL). BNPL is a finance option that allows buyers to make purchases and pay them off at a later date with an interest-free period.

So how is buying something with a credit card different from using Buy Now, Pay Later? What is the most cost effective method of financing purchases? Keep reading to find out.

Where BNPL is similar to credit card

Just as credit cards come with an interest-free credit period, most BNPL lenders also offer a no-credit period on these programs. A credit card gives you the option of converting your purchase into Equivalent Monthly Payments (EMIs) spanning several months, most often up to 12 months (sometimes longer, like three years). Likewise, you can also get this facility to disguise payment in EMI (often for a short period) of BNPL lenders at the time of purchase. There are also BNPL lenders that offer the option to pay through IMEs for longer terms like 3 months to 12 months. However, keep in mind that not all BNPL lenders offer the option to convert payment to IME. So, check with the lender or read the terms and conditions to find out.

How they differ in their interest free credit period

While credit cards typically come with an interest-free credit period of up to 45 days, under BNPL, the interest-free credit period can be up to 15 days. However, some BNPL lenders now offer up to 45 days of interest free period. In fact, some offer longer interest free periods. For example, Uni, a BNPL lender, offers its consumers using its Paylater card a 3-month interest-free credit period.

The credit you can get through BNPL
BNPL lender Initial credit * Interest-free period
Flipkart Pay Later 10,000 rupees up to 35 days
Amazon Pay Later 10,000 rupees up to 45 days
HDFC FlexiPay Bank Rs 1000 – Rs 60,000 up to 15 days
ICICI Bank Paylater Rs 5,000 – Rs 20,000 up to 45 days
Lazypay Pay Later Rs 500 – Rs 9999 Up to 15 days
Zip Mobikwik Rs 500 – Rs 30,000 Up to 15 days
* For a month

Which costs more: BNPL or the credit card?

Costs: While some credit cards are free, meaning they come at no cost, many come with fees like membership fees and annual fees, which can be higher for cards. the most premium. Likewise, BNPL options come with and without these fees. The bank-run BNPL generally does not charge a processing fee for membership, which is often charged by other players.

Interest rate: In the case of BNPL schemes, interest is only charged when you opt for a longer repayment term well beyond the interest-free credit period. Regarding interest rates, the rate charged by bank-led BNPLs appears to be lower than that of programs offered by fintech players.

For example, HDFC Bank charges Rs 70 as interest for a period of 30 days on a purchase of Rs 3,000. If you calculate the annual interest rate, it is 28%. While the maximum interest for many fintech players is around 2.5% per month, or 30% per year. For example, Lazypay has a maximum interest rate of 28% while CASHe and Kissht have a maximum interest rate of 30%.

What about the interest rate charged on credit card purchases? It’s no secret that credit card interest rates are among the highest of all types of loans, whether secured or unsecured. The revolving credit on a credit card is often 3% to 3.5% per month which comes out to 36-42% per year. However, there may be high risk borrowers for whom BNPL lenders may also charge equally high interest rates.

Read also: Watch out for these costs in the Buy Now, Pay Later programs

Difference in eligibility criteria

Not everyone who applies for a credit card will get one, as card companies and banks turn down many applicants who do not meet their strict eligibility criteria. However, most of these consumers can get the BNPL option quite easily.

“Today, BNPL has become a convenient payment option for young consumers who may not have access to credit cards or are looking for a better payment experience. Consumers can create a BNPL account instantly without much hassle while applying for a credit card is a tedious process. Says Anup Agrawal, Business Head, LazyPay, a BNPL lender.

There are many consumer segments such as the self-employed and low-income that are not preferred by credit card providers, and these are the consumers that many BNPL lenders go to.

However, keep in mind that the bank-led BNPL option is not available for free to all applicants. For example, only HDFC Bank pre-approved checking and savings account customers are eligible for its FlexiPay service. PayLater by ICICI Bank is available to a set of clients by invitation only. Customers for whom the facility is available will receive the prompt pop-up when they log into Pockets Wallet, iMobile, or Internet Banking.

Credit card offers higher credit than BNPL

For BNPL, the overall use of purchases on these platforms is limited to a total of Rs 60,000 per year, as the loan amount sanctioned using the OTP based KYC cannot exceed Rs 60,000 per year without completing the full KYC according to RBI rules. If your needs are greater, you can either go for a full KYC or look for other funding options.

“It is advisable to go for personal loans if the borrower needs a loan for larger amounts, BNPL is a preferred product if you are looking to finance low cost items while shopping online”, explains Yogi Sadana, CEO of CASHe, an instant lender. fintech player. Although some of the BNPL players offer a higher limit usually in the form of a personal loan, however, not all BNPL borrowers will be eligible for a higher personal loan limit.

When it comes to credit cards, if you have a pre-approved upper limit, you can always go for larger purchases and spending. Credit cards also offer the possibility of going over the credit limit, although it costs more and can have a negative impact on the credit rating. Click here to find out more

Both offer a good deal in their specific segments

Although a credit card works universally, however, every credit card may not be able to strike a deal with all merchants at all times. Depending on your purchasing preferences, you may prefer a particular merchant for the bulk of your budget. So there is a good chance that the BNPL option of the merchant you are shopping with may offer a better deal than what your credit card can offer.

However, sometimes the reverse can happen. If a credit card provider offers a refund on certain products on a particular platform, you had better use your credit card as it will not only give you the usual credit-free period, but it will also reward you with the refund. additional.

BNPL offers instant access and easier than a credit card

When shopping online, filling out your credit card details and going through the multiple levels of authentication often takes a lot of effort. This is where BNPL scores in terms of ease of access as you are ready with an authentication step or with a virtual UPI ID followed by single sign-on.

Another area where the credit card loses points is the application stage – once you apply for your credit card, it may take 2-3 weeks for you to finally get the card. However, the approval status of the BNPL line of credit is known almost instantly. “CASHe’s BNPL offer helps a borrower make purchases for as little as Rs 1,000 with zero cost IMEs. In addition, for BNPL, the account can be created quickly and the money is accessible in a few minutes ”, explains Sadana.

“There are use cases where the customer uses our BNPL service even when credit is available – these boil down to ease of use, transaction speed and the fact that the BNPL offering (in the grace period) is free, ”says Krishnan Vishwanathan, CEO and Founder. , Kisht, an instant lending fintech player.

The credit card has better universal acceptance than BNPL

Most of the e-commerce platforms and other merchants also try to promote the BNPL option of their house or partner. Flipkart offers the option of subsequent payment through its financial arm Flipkart Advanz Services. Amazon Pay EMI has been renamed Amazon Pay Later. Amazon offers this possibility through its lending partners such as Capital Float or IDFC FIRST Bank. So, if you get the BNPL facility from one of these lenders, it may remain more specific to that platform.

And since the market is so fragmented and everyone is keen to get into the lending business, based on preference and interest, traders typically only integrate a select set of fintech players from BNPL. This is why only a few BNPLs will have synchronized visibility at the merchant’s payment counter. Unless it is UPI based BNPL financing, it is difficult for all BNPL fintech lenders to have wider acceptability.

Credit cards, on the other hand, work on all platforms and have the greatest reach when it comes to accepting payments.

What should you do?

It is always best to compare the total cost of financing before focusing on a lender. If you have a credit card, you automatically benefit from the credit-free period, so your decision whether or not to go for BNPL will depend on the attractiveness of the deal – fees, interest rates, etc. So whoever offers the best deal, you can go along with it. If it’s about buying on longer term EMI, chances are your credit card offers a better rate than BNPL which you can always check and decide.


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