Is “buy now pay later” safer than a credit card for holiday purchases?

A female clothing store employee swipes a credit card at a tablet to pay.

Image source: Getty Images

The answers you need may be hiding in the lowercase letters.

the main points

  • Buy now, pay later (BNPL) services and credit cards allow you to pay for purchases over time.
  • Although they work slightly differently, they have similar consequences for those who fail to pay.
  • One may suit you better than the other depending on your situation.

Picture this: You confidently approach checkout with a cart full of holiday purchases and pay for everything with cash. Then, once the day arrives, you watch your elated friends and relatives open their gifts while you rest easy knowing the bill has already been taken care of. This is a Christmas miracle we can all get behind. But the reality is often not the case.

Sometimes we need a little help with our holiday bills, and these days, we have more options than ever. Two of the most popular credit cards right now and Buy now and pay later Services (BNPL). Here’s what you need to know about both to decide which one is right for you this year.

How do credit cards work

credit cards They are the go-to option for many people who shop online because they are safer than using debit cards. As long as you pay your bill in full at the end of the month, you’re golden. You’ll only owe how much you’ve actually spent over the past month, and you may earn some rewards points that you can put toward future purchases.

But things can get hairy pretty quickly if you have to keep a balance. You will not be charged any late fees as long as you make the minimum card payment. But the remaining balance will start accruing interest, and that can add up quickly.

Some credit cards charge annual percentage rates (APRs) More than 20%, causing the balance to swell rapidly. These additional interest charges make it more difficult to pay off what you owe, leading to a debt spiral that can last for months or even years.

How to buy now, pay later services work

BNPL services are similar to credit cards in many ways. You usually sign up for this service at checkout, and you can complete your purchase without paying full price for an item. However, you usually have to pay a small amount up front.

After that, you will pay the rest in installments over time. Exact terms vary depending on the BNPL provider. Some charge interest, but others don’t as long as you keep up with your payments. Lots of people like the flexibility these services offer, but they can be just as dangerous as credit cards if you ignore the terms.

Missing payments can lead to consequences, including:

  • Late fees
  • Interest charges on the remaining balance
  • The collection agency is notified

This could harm you, too Balance level In the long run, which could cost you a lot of money the next time you need to take out a loan.

So which is better?

Ultimately, the best course of action for you depends on your personal situation. If you stay on top of your payments, a credit card may be the best option. Not only does this enable you to make purchases just about anywhere, but the rewards you earn can help offset some of the cost of your items in the long run.

If you’re concerned about interest charges, a BNPL may be a better fit if you can find one with flexible terms and no interest rate. But not all retailers offer BNPL, and those that do often work with a specific provider, so you may not be able to choose which service to pay through.

Before making any decisions, review all the options available to you and research their terms and conditions. Find out when you’ll be expected to pay back what you owe and what could happen if you’re late with your payments. Then choose the option that presents the fewest downsides.

Whichever method you go with, make sure you keep track of how much you’re spending so you don’t overspend. It’s easy to lose track of how much you bought, especially when you’re shopping at multiple retailers and using cards instead of cash. Keep your shopping list handy so you know how much room you have in your budget.

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