Buy now, pay later vs. credit cards: Which should you use for your next purchase?

Core Insights - The rise of Buy Now, Pay Later (BNPL) services is making short-term lending more accessible and popular, with 15% of people using these services in the past year [1][2] - BNPL offers an alternative to credit cards, allowing consumers to split purchases into installments, but it may lead to overspending and increased debt [2][24] Overview of BNPL - BNPL allows consumers to make purchases and pay in installments, typically consisting of four interest-free payments over a few weeks, with late fees applicable for missed payments [3][4] - Various BNPL providers, such as Klarna, Affirm, and Afterpay, offer different payment structures, including interest-free plans and longer-term financing options [5][9] Payment Options and Fees - Klarna charges a late fee of up to $7 for payments more than 10 days late, capped at 25% of the total purchase amount [6] - Affirm does not charge fees for late payments, but interest rates apply for monthly plans [7] - Afterpay offers multiple payment options, including interest-free payments and longer-term plans with interest [9][10] Credit Card Integration - Some credit card companies offer BNPL options, allowing users to create installment plans for eligible purchases [13][15] - Credit card payments can be used for short-term BNPL plans, but longer-term plans typically require a debit card or linked bank account [11][12] Consumer Behavior and Risks - A significant portion of BNPL users (58%) reported using these services because they could not afford the purchase upfront, with 24% admitting to making late payments [24][26] - The ease of access to BNPL may lead to increased debt, especially for those already carrying credit card balances [25][26] Regulatory Environment - The Consumer Financial Protection Bureau (CFPB) has classified BNPL lenders similarly to credit card providers, requiring them to offer certain consumer protections [27][28] - As of June 2025, a new credit scoring model (FICO 10 BNPL) is expected to incorporate BNPL data into credit scores, which could impact consumers' credit ratings [22][21] Comparison with Credit Cards - BNPL plans generally have a simpler approval process with soft credit checks, while credit cards often require hard credit checks and have stricter approval standards [30][31] - Credit cards offer rewards and benefits that BNPL plans typically do not, making them more advantageous for consumers who can pay off balances in full [34][35] Conclusion - While BNPL services provide an accessible financing option, they come with risks of overspending and potential debt accumulation, particularly for consumers with existing credit card balances [24][26]