Is “Buy Now, Pay Later” safer than a credit card for holiday shopping?

A saleswoman in a clothing store swiping a credit card on a payment pad.

Image source: Getty Images

The answers you need might be hiding in the fine print.

Key points

  • Both Buy Now, Pay Later (BNPL) and credit cards allow you to pay for your purchases over time.
  • Although they work slightly differently, they have similar consequences for non-payers.
  • One may suit you better than the other depending on your situation.

Imagine this: you confidently approach the checkout with a basket full of holiday shopping and pay for everything in cash. Then, when the day comes, you watch your delighted friends and relatives unwrap their presents while you rest comfortably knowing the bill is already paid. It’s a Christmas miracle that we could all participate in. But the reality is not often like that.

Sometimes we need a little help with our vacation bills, and these days we have more options than ever. Two of the most popular right now are credit cards and Buy Now, Pay Later (BNPL) services. Here’s what you need to know about the two to decide which is right for you this year.

How Credit Cards Work

Credit cards are the option of choice for many people shopping online, as they are more secure than debit cards. As long as you pay your bill in full at the end of the month, you’re golden. You’ll only owe the amount you’ve actually spent in the last month, and you might even earn rewards points that you can use for future purchases.

But things can get hairy pretty quickly if you have to keep a balance. You won’t have to pay any late fees as long as you make the minimum card payment. But the remaining balance will start earning interest, and that can add up quickly.

Some credit cards charge annual percentage rates (APR) above 20%, which quickly inflates your balance. These extra interest charges make it even more difficult to pay off what you owe, resulting in a spiral of debt that can last for months or even years.

How Buy Now Pay Later services work

BNPL services are similar to credit cards in many ways. You typically sign up for this service at checkout and can complete your purchase without paying the full price of an item. However, you usually have to pay a small amount upfront.

Then you pay the rest in installments over time. The exact terms vary by BNPL provider. Some charge interest, but others don’t as long as you track your payments. Many people appreciate the flexibility offered by these services, but they can be just as dangerous as credit cards if you ignore the terms.

Missing payments can lead to consequences, including:

  • Late fee
  • Interest charges on remaining balance
  • Be reported to a collection agency

It can also hurt your long-term credit score, which could cost you dearly the next time you need to take out a loan.

So which is the best?

Ultimately, the best course of action for you depends on your personal circumstances. If you stay on top of your payments, a credit card might be the best option. Not only does this allow you to shop just about anywhere, but the rewards you earn can help offset some of the cost of your items in the long run.

If you’re worried about interest charges, a BNPL service might be better suited if you can find one with flexible terms and no interest rates. But not all retailers offer BNPL, and those that do often work with a specific provider, so you may not be able to choose which service you pay through.

Before making a decision, review all the options available to you and dig deep into their terms and conditions. Find out when you’ll have to pay back what you owe and what might happen if you’re behind on your payments. Then choose the one that offers the least inconvenience.

Whichever method you use, be sure to keep track of how much you spend so you don’t go overboard. It’s easy to lose track of the amount of your purchases, especially when you shop at multiple retailers and use cards instead of cash. Keep your shopping list handy so you know how much room you have left in your budget.

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