The concept of expensing purchases is not new. People who couldn't buy an item outright used to put it on layaway in stores back in the day. And credit cards have long been a way for customers to spread out the expense of purchases over a longer period of time, although at a price.
In recent years, "Buy Now, Pay Later" finance programs, or BNPL plans, have become a more common alternative for financing purchases with instant loan approval apps. Paying in installments is an option with these plans since they allow customers to put money down, pick up their things from the shop (or have online purchases brought to their house), and pay them off over time.
BNPL plans don't charge interest while you carry debt, unlike credit cards, which do. A BNPL plan gives you three months to pay off your purchase. If you stick to your plan and pay your bills on time, you won't be charged any interest or penalties.
To help you out, we have created a guide on Buy now pay later vs. a credit card. Go and scroll to know the difference between the buy now pay later app and credit card!
More convenient for approval: Pay later and buy now
Apps like BNPL often don't demand a hard credit check, and many don't even require a credit check at all.
Those with poor credit or no credit at all will find this to be a boon, as well as those who are concerned about the number of credit queries they receive. Credit card applications are counted as an inquiry, so if you make several in a short period of time, your credit score may suffer.
Using the benefits of Buy now pay later apps to pay for online purchases is undoubtedly handy. This eliminates the need for you to submit a long application and wait for a response. Although it is simple, this does not mean it is a sensible decision.
So, what is the difference between the buy now pay later app and credit card?
The Buy Now, Pay Later option sounds like a great value to us! Even yet, each person has distinct financial demands and preferences. When comparing the advantages and disadvantages of BNPL against credit, here are a few crucial considerations to keep in mind.
The application procedure for BNPL platforms is completely free of difficulty. The procedure of applying for a credit card can be lengthy and time-consuming; however, the application process for Zipping is nearly immediate and does not require a rigorous credit check.
Once accepted, customers may sign up for the service, purchase items, and pay for them directly through the app. Millennials and members of Generation Z prefer this payment option because of the immediate pleasure it offers.
To debt or not to debt
The use of credit cards might be said to be a form of deferred payment (i.e., at the end of the month). A major drawback of using credit cards is that they typically come with a large additional fee, known as interest, which must be paid. Because this is how banks and credit card companies generate money, it's in their best interest (pardon the pun!) for customers to pile up debt. The existence of BNPL platforms may be attributed in large part to the prevalence of this type of predatory lending.
There may be other Buy Now, Pay Later services out there, but Zip does not charge any additional fees of any kind. A courteous reminder is sent out ahead of the due date of each installment to ensure that you don't miss a payment. This makes it difficult to put off payments and build up a mound of debt since it makes you more accountable for your purchases.
Plan ahead of time for your costs so that Buy Now, Pay Later works nicely with your current spending patterns and savings objectives. Your budget should take into consideration the remaining three payments if you decide to break a large purchase into four installments. By having a long-term view of your costs, you are better able to control your spending.
Responsible spending limits
You may set a spending limit on your credit card before you use it. As a result, it's much simpler to go over budget when your credit limit is in the thousands.
Zip restricts the amount of money you may have in your account to a few hundred dollars. Rather than delaying payments indefinitely and accruing interest, your installments are due on a predetermined schedule and are routinely withdrawn from the card linked to your account to promote prompt payment. With us, you won't ever have to worry about being taken advantage of by devious repayment plans or extra fees. Instead, you can count on four conventional payments spread out over six weeks.
In order to utilize Zip, our clients must have a balance of $35 or more. Depending on how quickly you pay off your purchases, you'll have a bigger accessible balance for new purchases in the app. To put it another way, the more money you have at your disposal, the better your financial situation will be.
Better for improving your credit score: Credit cards
One of the easiest methods to develop credit is to make frequent use of a credit card and to pay it off in whole and on time each month. To be clear, having a credit card doesn't automatically increase your score. Your credit rating can be ruined by late payments and delinquent accounts. As previously mentioned, the application for a credit card might have an impact on your credit score. The credit bureaus do not get timely payment information from several BNPL applications. Because of this, you won't get credited for them. On the other side, if you don't pay your bills on time, your credit rating will suffer.
Depending on how you use them, credit cards may either help or destroy your credit. Many BNPL applications, on the other hand, can lower your score solely if you don't pay off your debt when you're supposed to.
BNPL vs. credit card: Which is better?
As long as the money is already sitting in your savings account, it may be a good idea to go ahead and use a BNPL plan to finance a purchase that will be paid for within a few months (say, you don't want to pull all of it out at once). Using a debit card instead of a credit card may be a better option because a credit card often charges interest if the item is paid in full within a few months.
It's important to use BNPL plans with prudence like you would use a credit card and not charge anything that you can't pay off by the due date of your payment. BNPL plans, on the other hand, can be used for larger, planned-out expenditures, but they aren't really suited for everyday purchases. Credit cards do give incentives and cashback for ordinary purchases, but BNPL plans do not. BNPL plans should not be used in place of existing credit cards for this reason. If you understand what you're signing up for, credit cards and BNPL plans can be used at the same time.