Until a few years ago, buy now, pay later meant using one Credit Card for purchase. However, over the years, we have seen that banks, e-commerce companies and even fintech companies offer schemes called Buy Now, Pay Later (BNPL) for buyers. NS BNPL A financing option that allows buyers to make purchases and pay for them at a future date with an interest-free period.

So, how is buying something using a credit card different from using a Buy Now, Pay Later plan? Which is the more cost effective method of financing the purchase? Read on to find out.

Where BNPL is same as credit card

Just like credit cards come with interest free credit period, most BNPL lenders also offer debt free period A credit card on these plans gives you the option to convert your purchases into equated monthly installments (EMIs) spread over several months, mostly for up to 12 months (sometimes for more, like three years). Similarly, you can also get BNPL lenders to cover the payment in EMIs (often for a shorter tenure) at the time of purchase. There are also BNPL lenders that offer the option of paying through EMI for longer tenures ranging from 3 months to 12 months. However, keep in mind that not all BNPL lenders offer the option to convert the payment into EMI. So, check with the lender or read the terms and conditions to find out.

How they differ in their interest free loan tenure

While credit cards generally come with an interest free credit period of up to 45 days, the interest free credit period under BNPL is mostly up to 15 days. However, some BNPL lenders now offer an interest-free period of up to 45 days. In fact, some even offer longer interest-free periods. For example, Uni, a BNPL lender, offers an interest free credit period of 3 months to its consumers for using their Paylater card.

Which is more expensive: BNPL or Credit Card?

Fee: While some credit cards are free, that is, they have no cost, many come with fees such as fees and annual fees, which can be on the high side for more premium cards. Similarly BNPL options come with and without such fees. The bank-led BNPL usually does not charge a processing fee for joining which is often charged by other players.

Rate of interest: In case of BNPL schemes, interest is charged only if you opt for a longer repayment tenure than the interest free credit period. As far as the interest rate is concerned, the rate charged by bank-led BNPL appears to be lower than such schemes offered by fintech players.

For example, HDFC Bank charges Rs 70 as interest for a period of 30 days on a purchase of Rs 3,000. If you calculate the annual interest rate it is 28%. While the maximum interest of many fintech companies is around 2.5% per month which is 30% per annum. For example, Lazypay has a maximum interest rate of 28%, while Cashe and Kissht have a maximum interest rate of 30%.

What about the interest rate charged on credit card purchases? It is no secret that credit card interest rates are among the highest of any type of loan, whether secured or unsecured. Revolving credit on credit cards is often 3% to 3.5% monthly which is 36-42% annually. However, there may be some high-risk borrowers where BNPL lenders can charge an equally high interest rate.

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Difference in Eligibility Criteria

Not everyone who applies for a credit card will get a card as card companies and banks reject many applicants who do not meet their strict eligibility criteria. However, most of these consumers can get the BNPL option quite easily.

“Today, BNPL has become a convenient payment option among young consumers who do not have access to a credit card or are looking for a better payment experience. Consumers can create a BNPL account instantly without any hassle while credit card application is a It’s a difficult process.” Anoop Agarwal, Business Head, LazyPay, a BNPL lender says.

There are several consumer segments, such as the self-employed and low-income, that credit card providers do not like, and it is these consumers that many BNPL lenders reach out to.

However, keep in mind that the bank-led BNPL option is not freely available to all applicants. For example, only HDFC Bank’s pre-approved current account and savings account customers are eligible for its Flexipay facility. Paylater by ICICI Bank is available on invitation only basis for a group of customers. Customers for whom this facility is available will receive an invitation pop-up upon logging into Pocket Wallet, iMobile or Internet Banking.

Credit card offers more credit than BNPL

For BNPLs, total purchase usage on these platforms is limited to a total of Rs 60,000 in a year as the loan amount sanctioned using OTP-based KYC does not exceed Rs 60,000 in a year without completing full KYC as per RBI norms Might be possible. If your requirement is high, you will either have to go for full KYC or look for other modes of funding.

Yogi Sadana, CEO, Cashe says, “If the borrower needs a loan for a higher amount, it is advisable to opt for a personal loan, BNPL is a preferred product if you are looking to finance small items while shopping online. Huh.” Fintech player. Although some BNPL players usually offer higher limits in the form of personal loans, not all BNPL borrowers will be eligible for higher personal loan limits.

When it comes to credit cards, if you have a pre-approved higher limit then you can always go for bigger purchases and spends. Credit cards also provide the facility of swiping above the credit limit, although this comes at a high cost and can adversely affect the credit score.
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Both are good bargains in their respective segments

Although one credit card works universally, not every credit card may be able to deal with all merchants at all times. Depending on your shopping preferences, you may prefer a particular merchant for a larger portion of your budget. Therefore, there is a high chance that the BNPL option of the merchant you are shopping with may offer a better bargain than what your credit card offers.

However, sometimes the reverse can happen. If a credit card provider is offering cashback on certain products on a particular platform, you will be better off using your credit card as it will not only give the normal credit free period but it will also reward you with additional cashback.

BNPL provides instant and easy access as compared to credit cards

When shopping online, it often takes a lot of effort to fill in your credit card details and go through multiple levels of authentication. This is where BNPL scores in terms of ease of access as you are prepared with an authentication step or one-time authentication with a virtual UPI ID.

Another area where the credit card loses points is the application stage – once you apply for your credit card it can take anywhere between 2-3 weeks for you to receive the card. However, the approval status for the BNPL credit line becomes known almost immediately. “The BNPL offer from CASHe helps a borrower to make purchases for as low as Rs 1,000 with zero cost EMI. Also, for BNPL, the account can be created quickly, and the money can be accessed within minutes,” says Sadna.

“There are certain use cases where customers use our BNPL service even when credit is available – these are ease of use, transaction speed and the fact that BNPL offers are free (within the grace period),” says Krishnan Viswanathan, Says the CEO and founder, Kissht lends an instant fintech player.

Universal acceptance of credit cards better than BNPL

Most of the e-commerce platforms and other merchants are also trying to promote their inhouse or partner’s BNPL option. Flipkart offers the option of paying later through its financial arm Flipkart Advanz Services. Amazon Pay EMI has since been re-branded as Amazon Pay. Amazon offers this facility through its lending partners such as Capital Float or IDFC FIRST Bank. So, if you get a BNPL facility from one such lender, it may be more specific to that platform.

And since the market is so fragmented that everyone wants to get into the lending business, based on preference and interest, traders usually only hook up to a select set of BNPL fintech players. That is why only a few BNPLs will have visibility synchronized on the merchant’s payment window. Unless it is UPI-based BNPL funding, it is difficult to have wide acceptance for all BNPL fintech lenders.

Credit cards, on the other hand, work across all platforms and have the greatest reach in terms of payment acceptance.

what should you do?

It is always better to compare the total cost of finance before looking at a lender. If you have a credit card then you automatically have a credit free period, so your decision to go for BNPL or not will depend on the attractiveness of the deal – charges, interest rates and so on. So, whoever offers a better deal, you can go with them. If it comes to making purchases on longer tenure EMIs, chances are that your credit card may offer a better rate than BNPL which you can always check and decide.