Don’t use credit cards like this!

While many people are still warming up to the idea of credit cards, several fintechs  and e-commerce companies have already offered a similar scheme known as Buy Now, Pay Later (BNPL). The concept of this scheme is primarily that of a credit card. This is the reason why most people may simply get confused between the two and end up using the term interchangeably. However, the two are slightly different concepts. Let’s clear it for you.

BNPL is basically yet another financing option that will allow customers to make purchases and pay for the same at a specific future date with an interest-free period. So is this option more cost-effective than a credit card or other such debt instruments?

Concept of BNPL

“BNPL operates like any other payment option during online shopping. On selecting BNPL, you will see different alternatives ranging from one-shot payment after 30 days to 3-12 months EMI scheme. These options can vary depending on the vendor, product, and value of the transaction, but broadly they allow you to either defer the payment by a set number of days or make the payment in instalments,” said Pankaj Bansal, CBO at BankBazaar.com.

It may be possible to convert the one-shot payment into EMIs at a later time. While most BNPL players provide an interest-free 30-45 days to make the repayments, the EMI options may come with an added interest in certain cases.

Difference between credit card and BNPL?

Credit cards provide you with a much wider range of rewards such as cashbacks, air miles, reward points and facilities like special discounts, airport lounge accesses, etc. BNPL are more or less limited to shopping online.

“Credit cards also allow you to shop offline, while BNPL is primarily popular in the online space. Unlike credit cards, BNPL plans often charge no interest. Credit cards may also offer higher limits compared to BNPL,” Bansal said.

Should you opt for BNPL?

“If you are looking for a single payment solution that’s both flexible and rewarding, then credit cards may be the way to go. However, if you are looking for an alternative payment option that allows you to defer payments or allows easy EMI options, then BNPL may be the way to go,” Bansal advised.

You should also keep in mind that credit cards enjoy wide acceptability compared to BNPL scheme which is a relatively new scheme and limited in use. Thus, take your time to analyse the benefits and decide accordingly.