Buy-now-pay-later vs credit cards: Pros and cons

You may not always have enough money in the bank to pay for things you need, up front. There are payment options, such as credit cards and Buy Now Pay Later (BNPL) schemes, that allow us to purchase something now and pay it back afterwards (as the name suggests).

That convenience can have disadvantages and advantages depending on your situation. That means it’s important to know exactly what those are, how to avoid any pitfalls, and to determine the best option for you if any. 

What’s the difference between BNPL and credit cards? 

Buy-Now-Pay-Later and credit cards do have their similarities, but there are a few key differences. 

Buy-Now-Pay-Later Cards 

BNPL allows you to purchase items from that retailer without paying in full right away. Usually, you’ll need to put a minimum amount down, then pay off the rest in instalments. 

For example, you might purchase a $1,000 couch by putting down $200 at the time of purchase. Then, you agree to paying $200 per week for the next four weeks to pay off the remaining amount. Note that repayment durations are typically set at six to ten weeks. 

That agreement tends to mean that those remaining payments will automatically be deducted from your bank account, credit card, or debit card, depending on which option you choose. 

This can be convenient for some:          

  • The agreement for repayment is usually automatic, so you don’t have to make any further manual transactions
  • You get to take home the item(s) immediately 

Currently, many Kiwis have BNPL debt. Our Generation Debt Report shows that 25% of Kiwis have Buy-Now-Pay-Later debt, and that number is higher amongst Gen Y, of which 33% have BNPL debt. 

Note that BNPL cards are different to lay-by, which would allow you to pay for something in instalments with a retailer. With lay-by, you would only pick up the item(s) once the cost has been paid in full and usually, there is not a fee.   

Credit Cards

Credit cards are provided by financial institutions, typically banks. 

These cards allow you to make purchases from anywhere, even overseas, without putting any money down at the time. 

To pay that money back, you will need to take money out of your other bank accounts and put it against your credit card debt. The bank will let you know the minimum required payment each month or you can pay it off in full each month. It’s important to note that interest will be charged.

Our Generation Debt Report highlights that credit card debt is the most common kind in New Zealand, with 42% of Kiwis reporting they owe money on their card or cards (mortgage debt, in second place, isn’t even close on 34%). 

Credit cards may provide some convenience: 

  • Shop anywhere (depending on the card) 
  • Pay everything off on one card
  • Enjoy your purchases immediately 
  • Some cards will have a 0% interest rate offer for a limited time 

The costs: Interest, fees and missed payments 

It’s important to understand all costs associated with both BNPL and credit cards. 

Buy-now-pay-later cards 

Buy-now-pay-later cards have fees and charges that you should be aware of before signing up for one. 

  • There are usually late fees if you do not make a payment
  • There are often spending limits capping the amount you can buy
  • There may be monthly administration fees if you do not meet your payments
  • Missed payments can negatively affect your credit score

Credit cards  

Credit cards also have their fees and charges, such as: 

  • Interest rates   
  • Minimum repayments may not be enough to pay off the debt in a timely manner
  • Annual fees
  • The potential to damage your credit score if you miss repayments

Is BNPL safer than a credit card? 

Some people may consider a buy-now-pay-later card to be a safer option for avoiding debt than a credit card. 

That may be due to the fact that BNPL cards usually have lower debt limits, and shorter, set repayment plans that are automated from the time you set them up.      

However, it’s always important to remember that BNPL debt is still debt. Our Generation Debt Report found that 60% of survey respondents had paid off a BNPL card without issues in the past year. That said, 18% said they paid it off with difficulty, 8% missed one or more payments, and 5% had to pay late fees. 

Tips to stay in control of your spending 

With so many battling the cost of living right now and relying on BNPL and credit cards, here are some simple tips to keep that spending under control and help reduce your debt

  • Consider paying more than the minimum repayment if possible
  • Consider whether moving or consolidating debt to lower interest rates would assist to bring down the debt
  • Create a budget and stick to it 
  • Track where your money is going so you’re aware of how much you spend on each area (this might make it easier to find ways to cut back on spending) 

When managing your spending and repaying your debts it may be worth considering what if something were to happen to you, or your ability to earn an income, how would you, or your family manage your expenses? One of the things that you could do is consider whether life insurance or income protection insurance would be of benefit.