Buy now, pay later (BNPL) plans are becoming more popular, especially among Gen Z and college students. While BNPL plans offer flexibility and convenience, it’s important to be aware of some of their limitations. This article will help you compare buy now, pay later vs. credit cards to help you understand how they differ—and which is right for you.
Buy Now, Pay Later vs. Credit Card: Which is Right for You?
Published July 10, 2024
9 min read
Key points about: BNPL vs. Credit Cards
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Buy now, pay later (BNPL) plans let you break up large purchases into a series of installments.
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There are pros and cons to BNPL plans vs. credit cards, depending on your financial goals and spending habits.
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You’ll need to meet age, income, and other requirements to get a credit card or be approved for a BNPL plan.
What is a buy now, pay later plan?
A buy now, pay later (BNPL) plan is a type of short-term financing plan, or installment loan, that gives you more flexibility to make large purchases. There are two ways that customers can enter BNPL plans: either by selecting a BNPL payment option during the checkout process, or by signing up for a service that offers BNPL plans at select retailers. Examples of these services include Paypal, Affirm, Klarna, and Afterpay.
A BNPL payment option allows you to make purchases immediately and pay for them over time, typically through a series of installments. If you choose a BNPL option at checkout, you may pay a portion of the total cost upfront, commonly known as a down payment, and the rest is split into smaller, regular payments. These payments are usually due every two weeks or monthly. One of the key attractions of BNPL plans is their low or no interest charges, provided payments are made on time.
How do buy now, pay later plans work?
A BNPL plan allows you to make a large purchase, like buying a new laptop for college, by paying a portion of the item’s price during checkout. You’ll make the remaining payments in a series of installments, generally over a period of several weeks or months. Installment plans are typically interest-free, but fees and rates can vary, so be sure to read the fine print.
Imagine Becky wants to buy a new smartphone priced at $800. She doesn't want to pay the full amount upfront, and she's also wary of using a credit card due to high interest rates. During checkout, she chooses a BNPL option that splits her payment into four installments of $200 each, to be paid over eight weeks. Becky pays the first installment immediately and takes the phone home. She then pays the remaining three installments bi-weekly. This arrangement allows her to manage her budget more effectively without incurring any interest, as long as she makes her payments on time. This flexibility and ease of payment make BNPL a popular choice for larger purchases that consumers prefer to pay off over a short period.
What are the differences between BNPL vs. Credit Cards?
BNPL plans are being offered and accepted by an increasing number of U.S. retailers according to the Office of the Comptroller of the Currency, so it’s worth comparing the pros and cons of BNPL vs. credit cards. Both empower you to pay off purchases gradually with installments—but there are also significant differences when it comes to interest, fees, eligibility, and rewards, along with many other factors that we’ll explore below.
Imagine purchasing a new computer priced at $1,000. Using a BNPL service, you might be able to split this amount into four equal payments of $250, due every two weeks, without interest, provided you pay on time. This option makes the purchase immediately manageable without the immediate responsibility of paying the full price.
On the other hand, using a credit card, you could charge the full $1,000 to your card. If you don’t pay off the balance in full by the next billing cycle, you'll incur interest on the remaining balance. Credit cards offer more flexibility in how much you pay each month (as long as you meet the minimum payment), but the longer you take to pay off the balance, the more interest accumulates, potentially making the computer more expensive over time.
Both options have advantages: BNPL for its structured, short-term repayment without interest, and credit cards for their flexibility and potential rewards. However, the choice depends on personal financial situations and preferences.
Age requirements
The Credit CARD Act of 2009 requires you to be at least 18 years old to open a credit card account. Generally, 18 is also the minimum age to sign up for a BNPL plan. Some BNPL providers may have higher age requirements, such as 21 years, and they typically require users to have a valid form of identification and a payment method to use their services.
If you’re under 18, an alternative is to become an authorized user on a trusted family member’s account. Learn more about what age you can get a credit card.
Opening an account
It’s generally faster and easier to sign up for a BNPL plan than it is to get a new credit card, such as a student credit card. That’s because you can apply and get instantly approved for a BNPL plan at the point of purchase—or, as an alternative, sign up in advance using a BNPL service like Affirm.
You may also get a rapid decision when you apply for a credit card, especially if you go through the pre-approval process. However, it may take anywhere from 7 to 10 days before you receive your physical card in the mail.
Interest and fees
Buy Now, Pay Later (BNPL) services have gained popularity as a convenient payment option, allowing consumers to make purchases and pay for them over time, typically in installments. Many BNPL services don’t charge interest if payments are made on time, which is a key appeal for consumers looking to avoid traditional credit card interest. However, per the Office of the Comptroller of the Currency, late payments can incur fees, which vary depending on the provider and can include flat late fees, percentage-based penalties, or compounding interest.
Credit cards offer a revolving line of credit with a set credit limit, allowing consumers to make purchases and pay for them over time. Unlike BNPL services, credit cards typically charge interest on balances carried beyond the grace period, which is at least 21 days after the end of the billing cycle according to the Credit Card Act of 2009. Fees and interest rates also vary by credit card, with interest accumulating on any unpaid portion of your balance. For example, Discover offers a variety of low intro APR balance transfer credit cards. Review each card’s features to find the best credit card for you. Discover has no annual fee on any of our cards.
Benefits and rewards
One drawback of BNPL plans is that, other than their convenience, they typically don’t offer any benefits or rewards.
Credit cards, on the other hand, come with an exciting variety of perks and bonuses. For example, you can earn 2% cash back at Gas Stations and Restaurants on up to $1,000 in combined purchases each quarter with Discover It® Student Chrome.1
Paying off purchases
Credit card accounts are “revolving”, which means that as long as you make the minimum monthly payment, you can carry your remaining balance into the following month. However, interest may accrue on the unpaid balance.
BNPL plans typically split payments into four or more installments. In both cases, it’s important to budget responsibly and make all payments in full and on time.
Impact on credit
When you apply for a credit card, it typically causes a hard credit check, which may affect your score. However, using your card may help you build your credit with responsible use.
On the other hand, unlike credit card issuers and Apple Pay Later, not all BNPL plans report to the major credit bureaus. As of March 2024, Apple became the first major provider of buy now, pay later loans to report all of its customers’ “pay-in-four” account histories to a credit bureau (Experian). That means influencing your credit score is more difficult with a BNPL plan.
Purchase protection
BNPL plans don’t offer the robust consumer protection features of a credit card. For example, the Discover $0 Fraud Liability Guarantee ensures you're never responsible for unauthorized purchases on your Discover Card account.2
Earn top-tier rewards and build a credit history3 with a Discover Student credit card
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Benefits and drawbacks of BNPL vs Credit Cards
BNPL vs. credit cards each come with their own advantages and limitations, which means the best option depends on your financial goals and habits. For example, if your goal is to build credit, it may be easier to influence your credit score by using a credit card responsibly than by entering a BNPL plan. Let’s review some pros and cons of buy now, pay later vs. credit cards.
Benefits of credit cards
- Some cards feature generous perks and rewards, plus additional sign-up bonuses for new cardmembers
- Credit cards are more versatile than BNPL plans
- You can build your credit with responsible use
- Your credit card account gives you access to tools and resources, like Discover Card’s FICO® Scorecard4 or protection against fraud liability
- You may qualify for certain credit cards with poor credit or no credit history
Drawbacks of credit cards
- You must be at least 18 to get your own credit card
- Applying for a credit card can trigger a hard credit check that temporarily affects your credit score
- Interest will be charged on any outstanding portion of your balance, which is why it’s important to pay your balance in full every billing cycle
Benefits of buy now, pay later
- You can get approved instantly for a BNPL plan
- You have the flexibility to choose your payment dates in advance
- Some BNPL plans are interest-free
- You generally don’t need good credit or a credit history to qualify for BNPL
Drawbacks of buy now, pay later
- Benefits are typically not included
- BNPL is accepted by fewer merchants
- It’s less effective for building credit because BNPL isn’t included in current credit scoring models according to Experian
- BNPL plans are subject to various fees according to Experian, such as late payment fees or applied interest when missing a payment
Final thoughts about buy now, pay later vs credit cards
Ultimately, there are both drawbacks and benefits to buy now, pay later vs. credit cards, which is why it’s critical to weigh your options carefully. Some people may get the greatest benefit by combining both options. The right strategy for you depends on your spending habits, financial goals, credit history, and other factors.
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2% Chrome Gas and Restaurants: You earn a full 2% Cashback Bonus® on your first $1000 in combined purchases at Gas Stations (stand-alone), and Restaurants each calendar quarter. Calendar quarters begin January 1, April 1, July 1, and October 1. Purchases at Gas Stations and Restaurants over the quarterly cap, and all other purchases, earn 1% cash back. Gas Station purchases include those made at merchants classified as places that sell automotive gasoline that can be bought at the pump or inside the station, and some public electric vehicle charging stations. Gas Stations affiliated with supermarkets, supercenters, and wholesale clubs may not be eligible. Restaurant purchases include those made at merchants classified as full-service restaurants, cafes, cafeterias, fast-food locations, and restaurant delivery services. Purchases must be made with merchants in the U.S. To qualify for 2%, the purchase transaction date must be before or on the last day of the offer or promotion. For online purchases, the transaction date from the merchant may be the date when the item ships. Rewards are added to your account within two billing periods. Even if a purchase appears to fit in a 2% category, the merchant may not have a merchant category code (MCC) in that category. Merchants and payment processors are assigned an MCC based on their typical products and services. Discover Card does not assign MCCs to merchants. Certain third-party payment accounts and digital wallet transactions may not earn 2% if the technology does not provide sufficient transaction details or a qualifying MCC. Learn more at Discover.com/digitalwallets. See Cashback Bonus Program Terms and Conditions for more information.
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$0 Fraud Liability: An “unauthorized purchase” is a purchase where you have not given access to your card information to another person or a merchant for one-time or repeated charges. Please use reasonable care to protect your card and do not share it with employees, relatives, or friends. Learn more at Discover.com/fraudFAQ.
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Build credit with responsible use: Discover reports your credit history to the three major credit bureaus so it can help build/rebuild your credit if used responsibly. Late payments, delinquencies or other derogatory activity with your credit card accounts and loans may adversely impact your ability to build/rebuild credit.
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FICO® Credit Score Terms: Your FICO® Credit Score, key factors and other credit information are based on data from TransUnion® and may be different from other credit scores and other credit information provided by different bureaus. This information is intended for and only provided to Primary account holders who have an available score. See Discover.com/FICO about the availability of your score. Your score, key factors and other credit information are available on Discover.com and cardmembers are also provided a score on statements. Customers will see up to a year of recent scores online. Discover and other lenders may use different inputs, such as FICO® Credit Scores, other credit scores and more information in credit decisions. This benefit may change or end in the future. FICO is a registered trademark of Fair Isaac Corporation in the United States and other countries.
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