Which is better—BNPL or credit cards? Find out key differences

With the advancement in technology and introduction of artificial intelligence customers are now seeking more freedom and flexibility in payment options. Buy Now Pay Later (BNPL) and credit cards have emerged as popular choices in India.

Understanding the differences between these financial tools is crucial for making informed decisions. This article explores their features, benefits, and drawbacks to help you choose the best option for your needs.

Are the most fundamental elements of BNPL different from credit cards?

BNPL and credit cards are both consumer credit products but are structured and used in a significantly different way. BNPL enables one to purchase now and settle later within a given period with no interest if prepaid. Credit cards offer a revolving credit limit to use for different purchases with repayment within a given period of time to be exempted from charges of interest.

How does the application process differ?

The BNPL application process is less complex and burdensome, requiring just minimal identification authentication (KYC), whereas credit cards may require a fuller, more detailed application, such as a credit verification and the submitting of financial data, banking history, employment history, credit history etc. BNPL hence is more accessible to thin file or no credit consumers.

What about fees and interest applied?

BNPL typically does not have processing fees or yearly fees and is thus less expensive for short-term use. Credit cards, on the other hand, can have a number of fees including annual membership and processing fees. BNPL interest rates are generally lower than credit cards, especially if paid within the interest-free time frame.

Which of them is better for big purchases?

For bigger expenses, credit cards might be more appropriate as they give higher limits of credit than BNPL plans, typically ranging up to around ₹60,000. In such high spending circumstances, where in-cash payments are essential while making the purchase, credit cards are handier.

Do either option have rewards or benefits?

Credit cards will normally come with rewards plans, cashback rewards, and discounts with cooperating merchants. BNPL, on the other hand, does provide some cashback rewards, though these are not as lucrative and comprehensive as credit card rewards.

Considering all factors, what do you need to do?

The decision between credit cards and BNPL is generally a personal issue of finances and shopping behavior. For small, occasional purchases with no need for long-term credit checks, BNPL could be the way to go.

But if you can see that you will need larger lines of credit and you also want access to rewards programs, a credit card could be your best option. Always take your financial objectives and your ability to pay into account before making a decision.

(Note: Using a credit card carries its own set of risks)