Are ‘Buy Now Pay Later’ Schemes Replacing Credit Cards?

Buy now, pay later (BNPL) is the latest entrant in the credit market that is changing the dynamics of how credit is offered to consumers and consumerism in itself. Since the onset of the Covid-19 pandemic, this is one of the most popular and preferred options among Indian buyers. BNPL scheme is known to currently hold a 3% market share and is slated to grow exponentially in the near future. 

Considering the many benefits that BNPL has to offer, we can’t help but compare it to the benefits of credit cards and try to analyse which of the two can have more in store for new-age credit users.

What’s buy now, pay later or BNPL?

A buy now, pay later (BNPL) is primarily a point of sale instalment credit offered by many merchants to customers. This scheme is mainly available at the time of purchase and allows the consumer to make the payment towards purchases at a future date. The arrangement lets a customer make an upfront payment towards the goods or services and the remaining amount can be paid through a predetermined number of instalments in the future. 

As compared to credit cards, which may involve higher costs in terms of interest, BNPL schemes don’t levy interest charges and are often easily approved. BNPL scheme options are available to all buyers under the checkout option of most e-commerce platforms including Amazon, Myntra, Nykaa, etc.

How are credit cards different from BNPL?

Buy now, pay later loans can be used at retailers just like credit cards. Both these can also be used for purchases such as fuel, utility bill payments, etc. If a credit cardholder pays the full balance each month, he/she doesn’t have to pay any interest charges. While there are many similarities, there are also certain important differentiating points that can help buyers choose between credit cards and BNPL are:

  • BNPL options are applicable only on specific purchases made from a specific merchant. Credit cards, however, can mostly be used anywhere for making any kind of purchase. 
  • With a credit card, one has to pay the minimum amount due at the end of every month. However, with buy now, pay later, the payment option varies between 3, 5 or 12-month options. 
  • BNPL schemes mostly offer flexible terms while credit cards generally have more flexible acceptance. 
  • BNPL interest rates and charges may significantly vary across available options. Some options have no interest or fees at all, resulting in free financing for consumers. This is mainly because BNPL providers aim sometimes for the merchant fees that are often combined into product prices. They may either have a fixed cost or no cost and will inform the consumers about the net cost involved. This is usually not the case with credit cards.
  • BNPL schemes offer longer-term loans that can last up to 48 months. These generally carry an interest rate like any other personal loan. However, unlike credit cards or loans many BNPL providers don’t look at a user’s credit history while approving usage. This allows easy access to financing for many users. Credit card issuers mostly pull up the credit details of applicants before approving a card. Thus, depending on one’s credit score, one can either avail or get rejected for a credit card. 

Additional read – What Is A Pay Later Service Can A Pay Later Purchase Impact My Credit Score

Are credit cards making way for BNPL?

While more consumers opt for BNPL schemes, experts believe that they will not replace cedi cards in the future. Rather, they will continue to be used as an add-on credit facility beyond regular credit cards. 

Here are a few reasons why credit cards are here to stay:

  • Although BNPL appears to be an ideal option for consumers, a credit card allows many things such as payment of utility bills, on-store shopping, etc. 
  • With regards to interest, consumers can avoid paying extra interest charges by ensuring timely debt repayment. 
  • BNPL is a great option to easily make purchases now and pay for them later through instalments, many purchases have to be made by using a credit card. For instance, a credit card is a must for booking a flight ticket or renting a car. 
  • Although BNPL offers convenience through instant approval, it may not be in a position to entirely replace credit cards in the near future.

Depending upon individual requirements and personal preferences, you can make the right choice between a credit card and a BPNL scheme. 

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