Amidst the massive gap in credit demand, supply, and access to credit by millennials and youth customers, BNPL has gradually become the chosen mode of payment for eCommerce. Especially considering the strict restrictions on the issuance of credit cards, people are looking towards buy now pay later as the best alternative to traditional payment methods.
The reason is relatively simple. Millennials have the lowest average credit score compared to older generations. Around 28.1% of them have credit scores below 579. Besides, it is also normal for them to have the shortest credit history, considering their age and employment history. Therefore, availing credit cards is an impossible challenge for them.
With a fine line already drawn between the two, check out the other differences in this article.
Credit Cards: How are they different from BNPL?
Technically, credit cards have the same functionality as the pay-later payment method, as US federal law mandates. All purchases made at the close of the statement period will receive an allowance for at least 21 days, within which users must complete payment.
In simple terms, if consumers purchase something at the start of the monthly statement period, they can get more than seven weeks of interest-free financing.
However, after that, the interest comes rolling. Those who fail to pay within the grace period must abide by the APR (Annual Percentage Rate) of 16.13% or around $15 interest monthly for a $1000 balance.
On the contrary, BNPL does not ask for interest unless you pay the installments on time.
Significant Advantages of BNPL and Credit Cards
There is no doubt that BNPL eases the buying process for buyers. Compared to traditional buying methods, one can clear their carts with one tap and complete the transaction. It must be noted that different sites might have various BNPL service providers. Therefore, buyers might need to apply to each to avail of the service. However, that will be a one-time process; after that, it will still be hassle-free.
Here is where credit cards slightly have an upper edge. Buyers can have complete control of payments done at all online and physical retail store transactions from one credit card. But besides that, both offer a convenient checking-out experience.
How to choose one between the two?
Different factors depend on whether you should use BNPL or apply for a credit card. One needs to consider their financial situation, everyday buying needs, and availability of credit history.
If your purchases revolve mostly around daily essentials, then the pay-later method is the best short-term financing option. However, credit cards will give you power for larger ticket items. Sometimes, they even bring exciting rewards for completing due payments.
But, as said before, it is not easy for everyone to meet the eligibility requirements of a credit card. For them, BNPL is the best way out.
BNPL is gradually becoming popular among youngsters globally. The primary reason behind that is the convenience and affordability that it offers. With buy now pay later, consumers can avoid the hassles of paying upfront with every transaction. They can pay in flexible installments without the interference of hefty interest rates. Besides, it allows people to make slightly off-budget purchases as the amount can be split into easy EMIs.