Buy Now Pay Later Credit Cards – What you need to know before making a choice

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If you are already a fan of BNPL services (buy now, pay later), BNPL credit card options make it even easier to finance your purchases with online and in-store installments.

The services already work as an alternative to credit cards: when you make a purchase online, you can sign up for a plan to pay off the cost in a few weekly, biweekly, or monthly installments with fixed payments and fees.

BNPL services from companies like Affirm, Afterpay and Klarna are booming. According to an Adobe analysis published in March, BNPL’s online orders jumped 528% in October and November 2020 compared to the previous year. Demand also continues to grow, with a 53% year-over-year increase in online orders in recent months.

Now, some BNPL companies are expanding their offerings with credit cards that also make it easier to use BNPL for in-store purchases.

Additionally, many popular credit card issuers have rolled out their own BNPL services. Issuers like American Express, Citi, Chase, etc. all allow eligible cardholders to enroll card purchases into installment plans that work the same as third-party services.

Some experts are already skeptical of the potential costs and risks associated with BNPL, and the ability to use them for in-store as well as online purchases can only increase the chances of overspending or incurring potential charges. Here’s what you need to know about using a Buy Now, Pay Later plan with a credit card before signing up:

What are Buy Now, Pay Later cards?

Like BNPL’s installment payment plans for online spending, BNPL Cards allow cardholders to pay for their purchases in interest-free installments. But with the card, you can also register in-store purchases to BNPL plans.

Earlier this year, Klarna announced a waitlist for the Klarna Card, a physical Visa card that will allow cardholders to pay for all online or in-store purchases over time in four payments, similar to the current purchase from Klarna, pay later.

The Klarna card will be a Visa card issued by WebBank. You can use the card to pay for any in-store or online purchase with Klarna’s “Pay in 4” plan and a bi-weekly repayment schedule. Instead of a credit limit, you will be assigned a purchasing power upon approval, which will be reassessed with each purchase.

In February 2021, Affirm also opened a waiting list for its Affirm Debit+ card. The card is linked to an existing checking account and can be used to split any eligible online or in-store purchase within 24 hours of the transaction into four interest-free payments due every two weeks.

Card risk Buy now, pay later

However, like any buy-it-now, pay-later plan, these card options come with risks. Payments may be interest-free, but if you pay late or don’t pay the balance in full within the payment period, you could incur very high fees and even affect your credit score. Each company has its own terms that you need to know before signing up.

One of BNPL’s biggest risks is overspending caused by instant shopping gratification. “When losses are pushed back for weeks or months, they seem less, Carrie Rattle, a financial therapist in New York who specializes in overbought, previously shared with NextAdvisor. “Her [a] perception of greater accessibility that is not the reality,” she says.

And because in-person options make spending even easier than you can afford using BNPL, you could be at even higher risk of falling behind on payments due to overspending. When cardholders choose to fund the essentials, it can become difficult to budget and track payments.

“It’s less ‘Do you want to buy a Peloton bike for $50 a month for 43 months?’ and more ‘Do you want to buy groceries with this? Do you want to buy your morning cup of coffee with this?’ says Ted Rossman, senior industry analyst at CreditCards.com. Like NextAdvisor, CreditCards.com is owned by Red Ventures.

Credit cards with services Buy now, pay later

Over the past few years, several major credit card issuers have started offering their own BNPL options. You may be able to pay for in-store purchases with installment plans using a card already in your wallet.

For example, with the Plan It option of Amex’s Pay It Plan It feature, you can enroll qualifying purchases of $100 or more into an interest-free installment plan and pay it off in monthly installments for a flat monthly fee. The Chase version of BNPL is called My Chase Plan. It also gives cardholders the option to pay for purchases of $100 or more in installments for a flat monthly fee. These two plans offer different terms with varying periods and fees that you can choose from.

Citi’s option, Citi Flex Pay, is a little different. It’s available for purchases of $75 or more and charges interest, but the rate is fixed and may be lower than your card’s normal APR.

If you’re already used to paying your monthly credit card bill, signing up for a fixed installment plan through the card could help you pay off your purchases over time without adding a separate monthly bill you’ll have to remember. to pay. Additionally, the minimum requirement to enroll in the plans can help you avoid some of the overspending risks associated with BNPL.

However, these plans can also incur interest and penalties if you miss a payment or don’t complete the plan on time, and can also affect your credit score when the issuer reports missed or late payments to the credit bureaus. As with any credit card or installment plan purchase, make sure you have a plan to pay off your purchase within the terms of your plan before signing up.

  • Introductory offer:
  • Annual subscription :

    $95

  • Regular APR:

    16.24% – 23.24% variable

  • Recommended credit:

    670-850 (good to excellent)

  • Apply now external link icon On Chase’s secure site
  • Introductory offer:
  • Annual subscription :

    $0

  • Regular APR:

    13.74% – 23.74% (Variable)

  • Recommended credit:

    670-850 (good to excellent)

  • Learn more external link icon On the secure site of our partner

Buy now, pay later vs. credit cards

Whether you decide to use a credit card or buy now, pay later, plan a purchase in the future, the most important thing to consider is financing terms, experts say. It doesn’t matter if you’re paying off a credit card balance or BNPL installments, a debt is a debt. And debt can quickly become costly.

“Sometimes consumers just don’t understand what they’re getting into,” said Bill Butler, CEO of Kachinga, an AI-powered financial education platform for kids. “They’re just ready to make their purchase and they want to do it quickly. But paying attention to the terms is really important as they make that decision.

The best way to choose, suggests Rossman, is to compare terms and find the best deal.

For example, let’s say you want to make a purchase of $500 and pay it in installments. Here’s the difference between using a Chase card with a My Chase 6 installment plan or a Klarna Pay 4 plan, as you pay each installment on time and in full:

My hunting plan Klarna 4-Pay Plan
It’s time to repay 6 months (monthly payments) 6 weeks (bi-weekly payments)
Costs $13.38 $0
Number of payments 6 4
Amount of each payment $85.57 $125
Total cost $513.38 $500

In this case, the Chase Plan costs slightly more, but offers a longer repayment period of six months. If you have the money to pay off your balance in just six weeks, paying $125 every two weeks, you can save a little more using the Klarna plan. Alternatively, the Chase Plan may offer more flexibility for your payments over a longer period.

Pro tip

For longer interest-free financing, consider a Credit Card 0% APR. Some of the best 0% introductory periods available today offer up to 21 months interest-free on new purchases.

Of course, if you miss a payment or don’t pay in full during the plan period, the cost becomes much higher. Whether through a BNPL third-party service or your credit card issuer, missing payments or failure to pay for your purchase in full may result in more interest, fees and penalties.

Another thing to consider is the possibility of earning rewards. If you already have a great rewards credit card, you could earn cash back or rewards points on your purchase. As long as you can pay off your balance in full without charging interest, consider the rewards you could enjoy before making your purchase.

The Future of Buy Now, Pay Later

With BNPL providers getting into the cards and card issuers offering their own versions of BNPL, installment plans for your expenses seem to be here to stay. But some experts think we’re only at the beginning of what call options might look like in the future.

In the short term, you’re likely to see more and more retailers integrating BNPL options, predicts Ahon Sarkar, managing director at Helix, a banking-as-a-service (BaaS) platform behind a range of popular fintech products. As competition intensifies, BNPL companies may begin to provide “specialty hooks”, additional incentives such as discounts to encourage brand loyalty and integrate with credit-building tools.

Rossman and Butler agree that BNPL will likely expand beyond retail, particularly into travel, medical, dental and veterinary services. “I think there really is a market for low-rate, predictable installment financing, because it’s all expensive,” Rossman says. “And at the moment there are not many alternatives.”

Eventually, the lines between different types of credit, including credit cards and BNPL, will begin to blur, predicts Sarkar, giving way to personalized hybrid credit solutions.

“You’ll start to see the way we interact with credit as a society change a bit,” he says. “I think you’ll see these different credit instruments become more interchangeable…Over time, you’ll start to see these things become personalized for each user.”