BNPL Vs Credit Card: What Should You Choose?

Banks and non-banking financial companies (NBFCs) are offering innovative products to meet the diverse needs of customers with the rapidly evolving lending landscape in India. Various credit instruments are designed to cater to the multiple needs of borrowers, from shopping to travel. These days, Buy Now, Pay Later (BNPL) and credit cards have become popular credit facilities for short-term borrowing.

Be it shopping, travel, or large spending, you can use BNPL or credit cards for immediate expenses and pay the amount before the deadline, without any additional fees. Both BNPL and credit cards are forms of short-term debt that you can use to meet your financial needs.

Though both credit instruments may seem similar, allowing users to avail debt for a specified period but they differ in structure, flexibility, interest rates and charges.

However, which one would be best for you? Here is a look at the key differences between the two credit instruments. 

Buy Now, Pay Later refers to a loan that lets you purchase goods or services and pay for them in instalments or a lump sum within a pre-defined date. The repayment typically can be done within a few weeks. 

A credit card allows you to borrow money up to a pre-approved limit. You can use it for purchases, bill payments, or even cash withdrawals. You can pay the balance in full or in monthly instalments.

Usually, no interest is charged if a BNPL loan is cleared within the stipulated period. However, missing a payment will lead to interest charges and late fees.

Similarly, no interest is charged if credit card dues are cleared within the free period. If the outstanding amount is not cleared within the due date, the balance will attract interest. You can also make a minimum payment.

Though both credit instruments levy interest charges and fees beyond the deadline, the credit card interest rates could be higher compared to BNPL.

BNPL loans usually come with fixed instalment schedules. You can’t adjust the repayment amount or skip payments without penalties.

Credit cards offer greater flexibility. You can pay the minimum due amount, convert large purchases into EMIs, or settle the full amount to avoid interest.

It is one of the areas where credit cards beat BNPL. While credit cards offer reward points for transactions and other benefits, such as a fuel surcharge waiver, you will get no such advantage with a BNPL loan.

It is usually easier to get approval for a BNPL loan than a credit card. While you typically need to have a minimum level of income along with a good credit score to get a credit card, many BNPL facility providers may have more liberal eligibility conditions.

Applying for a credit card leads to a hard inquiry on your credit report. This hurts your credit score. On the other hand, applying for a BNPL loan leads to a soft inquiry, which doesn’t impact your credit score. However, when you use a BNPL, it could negatively affect your credit score.

To conclude, both BNPL loans and credit cards have similarities as well as differences. BNPL is a good tool for quick, interest-free purchases. It can be considered by those with limited credit access. However, credit cards offer more flexibility, rewards and long-term benefits for disciplined users.