Exploring the True Expenses of BNPL vs. Credit Cards
Uncover the genuine concealed expenses of BNPL in contrast to credit cards — and learn how “buy now, pay later” can evolve into “paying more.”
The True Cost of BNPL Compared to Credit Cards
BNPL (Buy Now, Pay Later) has captured the hearts of many Americans, particularly through services like Afterpay, Klarna, Affirm, and PayPal Pay.
The concept is straightforward: break payments into small, seemingly interest-free chunks. But is BNPL truly better than traditional credit cards?
Rise of BNPL in the United States
Data from the Consumer Financial Protection Bureau (CFPB) reveals that BNPL usage surged by over 400% from 2019 to 2023 in the U.S.
On retail giants like Amazon and Walmart, BNPL now shares the checkout stage with credit card options.
The primary users? Young adults aged 18 to 34, many of whom either lack a robust credit history or are wary of traditional credit cards.
This model is appealing as it eliminates hurdles: no extensive credit checks, no yearly fees, and the promise of no interest—provided payments are timely.
Yet, that “as long as” is crucial.
The Myth of ‘Interest-Free’
The main draw of BNPL is its promise of interest-free payments. However, this advantage has significant limitations.
Should a payment be delayed, platforms might impose fixed fees or interest rates as high as 25% per year.
Moreover, some companies can report late payments to credit bureaus, adversely affecting a consumer’s credit score.
In contrast, many credit cards provide grace periods of up to 30 days before interest kicks in—and still allow users to earn rewards, miles, and cashback.
Paying off the entire balance means the cost of credit is zero. BNPL, however, lacks this flexibility, and one missed payment can lead to a chain reaction.
Transparency and Control Issues
BNPL divides purchases among various platforms, making it challenging to keep track of total debts.
Many people find themselves with three to five active payment plans at once, each having different due dates and amounts.
A Pew Research Center study revealed that around 40% of BNPL users in the U.S. admitted to missing at least one payment.
This situation arises because, unlike credit cards that combine expenses into a single invoice, BNPL spreads out financial obligations.
The Threat of Hidden Debt
One major concern with BNPL is hidden debt. The lack of a unified bill combined with the allure of “small payments” can lead to a misleading sense of financial ease.
In 2024, the CFPB reported that over one-third of BNPL users in the U.S. turned to other credit options—like credit cards or personal loans—to manage BNPL payments.
Credit Cards: A Different Approach
Credit cards, despite their negative reputation, can be a valuable financial resource when managed wisely.
They provide fraud protection, rewards, travel insurance, and extended warranties—benefits that are often missing in BNPL offerings.
Furthermore, credit cards assist in <strongestablishing credit history, which is crucial in the U.S. for those aiming to purchase a car, rent an apartment, or even secure a job.
On the other hand, BNPL is uneven in this aspect: some providers share data with credit bureaus, while others do not.
Consumer protection is also a key factor. In disputes—like defective items or wrong charges—credit card companies generally provide clear chargeback procedures.
Finding Balance: Smart BNPL Usage
This doesn’t imply you should completely avoid BNPL. In certain cases—like small, one-time buys or seasonal deals—it can be quite beneficial.
It’s essential to see BNPL as a type of credit, rather than just an extension of your monthly budget.
Here are some key practices to follow:
- Limit active payment plans;
- Thoroughly read terms before buying;
- Avoid using BNPL and credit cards together;
- Keep a payment record in one place;
- Set automatic reminders for payments.
BNPL is here to stay, and it’s poised to expand in the U.S., highlighting a change in consumer habits focused on convenience, speed, and simplicity.
However, like any financial tool, it requires responsibility and awareness.
For today’s American consumer, grasping this distinction is crucial for using both payment options wisely and preventing ‘pay later’ from becoming ‘pay more.’
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