BNPL Cards: How different are they from regular credit cards?

BNPL Cards: How different are they from regular credit cards? Everything is getting more expensive these days. In the past two years alone, we have seen a rise in the prices of the most common goods like food and clothing. In response to this, many consumers are looking for the best method to stretch their finances and a better way to purchase things without compromising their budget.

Before, credit cards were the go-to payment option for times like these, but the high fees and charges can be a turn-off. This is where Buy Now, Pay Later (BNPL) cards or payment plans enter the picture.

To create more purchasing options for consumers, businesses, especially the retail and brick-and-mortar stores, started offering Buy Now, Pay Later options.

Now, it has become one of the fastest-growing payment methods in retail and even online purchases.

What is a BNPL and how does it work?

A BNPL or a Buy Now, Pay Later payment option is a way of spreading out your payment into installments that you can complete or pay over a period of time. This is typically used for small purchases and is the most common in retail. Instead of paying everything upfront, you can opt to pay with your BNPL card or app and stretch the cost of your purchased goods over a period of time. With the Buy Now, Pay Later (BNPL) payment method, you can receive your purchase and enjoy the goods even before you finish paying it off.

Over the past few years, many consumers have preferred BNPL cards and apps over traditional credit cards because they promise zero percent interest. It functions as a modern layaway payment plan, and this is especially popular among younger shoppers who prefer convenient and more accessible cheap payment methods with little credit checks and no interest fees.

According to Bain and Company, “Almost 40% of Americans under the age of 44 have used BNPL in the past 12 months, up from 33% at the end of 2020.”

Starting out as apps, today, BNPL providers like Klarna, Affirm, and Afterpay are also issuing their own debit cards, making them as accessible as credit cards, but without the fees and interest rate charges.

Who can benefit from a BNPL card?

Anyone can apply for BNPL. However, the Buy Now, Pay Later (BNPL) payment method is especially preferred by consumers with a weak credit history or consumers with no credit card at all but still want to enjoy the features and benefits that a regular credit card offers.

It is a great payment option for people who want to feel more in control of their budget.

The Buy Now, Pay Later (BNPL) payment method is not just benefiting consumers but merchants or small businesses as well. Because of the option to pay goods in installments with no interest fee, businesses are now seeing more customers willing to purchase from them.

What are the differences between a BNPL card and a credit card?

While the Buy Now, Pay Later payment method has many similarities with the credit card, they also have many differences in terms of accessibility, requirements, fees, and rewards.

  • Accessibility:-

In general, BNPL is more accessible than credit cards in terms of application. In fact, you have the option to apply for Buy Now, Pay Later plans online and be approved almost immediately. It has less requirements, and therefore, less strict than banks.

Meanwhile, in terms of merchant partners, consumers may find credit card payments more common than BNPL. You can also even use credit cards for purposes other than retail purchases. For example, they can be used to make utility bill payments.

However, more and more businesses are also jumping on the BNPL bandwagon because its accessibility promises new customers and better sales. This resulted in the rise in the number of merchants and businesses offering the BNPL option.  

  • Application Requirements:-

Because BNPL providers want to reach more customers, BNPL applications are generally easier than credit card applications. You can even do this online and the BNPL provider will do a soft credit check and ask for your information such as your name, billing address, phone number, date of birth, etc. This is simply to verify your identity and prevent fraud.

  • Fees:-  

Consumers find Buy Now, Pay Later plans more attractive because they do not have interest fees like credit cards do. On top of interest fees, credit cards may also charge fees for annual membership, balance transfers, foreign transactions, and late payments. Buy Now, Pay Later plans do away with these fees, however they still charge fees for late payments.

  • Benefits or Rewards:-

Credit cards offer many benefits and rewards that Buy Now, Pay Later plans do not. These include cash back, air travel miles, discounts or points that can be redeemed in future purchases.

Although BNPL consumers do not receive the same rewards credit card holders do, providers may increase their possible purchase limit when they pay on time. 

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Advantages of BNPL card:-

  • You can purchase products outside your budget without paying high credit card interest

One of the most attractive benefits of the Buy Now, Pay Later payment scheme is the option to split the cost of your purchase over a period of time without the high-interest rates that credit card companies charge. This allows consumers to purchase more without worrying about their budget.

  • You can spread out purchase payments even without a credit card 

While credit cards can be very useful, not everybody has one. One reason why people might not have a credit card is because they cannot get one due to a weak or non-existent credit score. This is especially true for first time-borrowers like students or new immigrants. Building a credit score takes time. Immigrants, for example, who are only starting out in the country would find BNPL plans helpful for short-term financial support.

Others might also choose not to have a credit card because they simply do not want to. Majority of adults in the United States may carry a credit card, but some consumers are skeptical about it and prefer a lifestyle without one.  

  • They don’t have hidden charges like credit cards have

Credit cards may be beneficial during a financial crunch, but they are also notorious for coming in hefty fees that many consumers do not appreciate. From one missed payment to surcharges, credit card fees can really pile up when you don’t pay attention.

BNPL providers attract their customers by claiming they can defer payments or pay for purchases in parts without any hidden fees. Since loans in these BNPL payment plans are short-term and low in value, fees are also generally lower than credit cards. 

Disadvantages of BNPL card:-

  • Low credit limit  

BNPL payment plans have a lower credit limit compared to your regular credit card. Credit limits may also vary depending on the provider, however they usually begin at $99 and $500 and can go up to $17,500. Some providers increase your limit over time. This can be affected by the length of your loan and how well you pay your dues.  

  • You risk late payment fees 

Although BNPL payment plans promise zero interest, this can only be applied to payments made on time. For late payments, they do charge a fee that can pile up when you miss your dues. 

  • Late payments may still affect credit scores and your ability to apply for loans 

Although paying on time does not affect your credit score, late payments do. When you fail to pay on time, BNPL providers will note the missed payment on your credit report and this can impact your credit score negatively.  

  • They encourage impulse spending 

Having the option to split purchase payments into manageable amounts at no interest can be very helpful, but it can also give off the impression that items are affordable. This encourages impulse spending. When unchecked, you might be spending more than what you should. 

What are the most popular Buy Now, Pay Later providers? 

Many Buy Now, Pay Later (BNPL) providers have emerged in the past few years and here are six of the most popular ones:

  • Affirm
  • Klarna
  • Afterpay  Zip (Quadpay)
  • PayPal’s Pay in 4
  • Sezzle

Buy Now, Pay Later plans are becoming more popular than ever, and for a good reason too. After all, credit cards have gotten a bad rap to many people over the years. With BNPL cards, you can receive and enjoy purchases immediately and pay them later in installments. Depending on your BNPL provider, you can either make these payments later in full, or split them into 3 or 4 equal parts.

The best thing about BNPL plans is that while they give you the option to enjoy purchases right away without worrying about hefty interest charges, it’s also very easy to qualify for. Even if you are only new to credit or do not have a strong credit score, it is still possible to enjoy split payment plans.

One must remember, however, that the Buy Now, Pay Later payment plan is still a form of debt. Even if it presents itself as a more affordable option, it can still rack up fees and charges if not used responsibly.

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