Buy now, pay later (BNPL) and credit cards have become increasingly popular payment options, with 360 million people worldwide using BNPL as of 2022 and more than 518 million credit cards in circulation in the U.S. alone. 

These payment options come in handy when you need to purchase something but don’t have the cash upfront. While popular, they have their advantages and drawbacks — and they aren’t the only alternative payment methods on the market.

Below, we’ll explore BNPL and credit cards in detail, including their pros and cons. We’ll also cover a third option: saving up for big purchases with Accrue Savings.

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BNPL is a payment plan that allows you to buy an item but delay paying for it. You pay a certain percentage up front, typically 25% of the total amount, and you can pay the rest in interest-free installments. 

The amount of up-front payment varies from one BNPL provider to another, with some offering no interest rate if the item is paid in full within a certain period. The installments are typically spread out over a few months, allowing you to pay off the item in smaller chunks. 

How does BNPL work?

BNPL is an alternative payment option, allowing you to purchase items without paying for them up front. By signing up to pay with a BNPL service, you can pay for your purchases over time in installment payments, usually within one to six months.

You can easily set up a payment plan with your BNPL provider when paying for the items. This allows you to spread the balance into smaller weekly or monthly payments that are easier to manage. 

After the initial 25% up-front payment (depending on the service), payments are automatically deducted from your credit card, debit card, or bank account on a recurring schedule — usually every two weeks. 

BNPL and credit cards are appealing payment options, but the lines between them can blur. However, there are some key differences in how they work, which makes them more suitable for different financial situations. 

Approval process

Applicants must go through a thorough application process for eligibility to receive a credit card. This includes providing personal information (including your social security number) and financial details to determine if you’re financially responsible enough for a credit card, what your credit limit should be, and what perks/rewards (if any) you qualify for. 

The approval process for BNPL accounts is usually much simpler, with no credit score requirements or deposits. This makes them especially appealing to those who don’t have a credit card — or don’t want to go through the hassle of applying for one. 

With a BNPL, you only have to provide your name, address, phone number, bank account, and email address. You can set up an account in minutes, compared to the several weeks it can take to be approved for a credit card. 

Age restrictions

You must be at least 18 to apply for your own credit card. A parent or guardian can co-sign for minors and add them as authorized users on their credit card, but the card remains in the guardian’s name and the guardian is responsible for making payments. 

Most BNPL accounts require you to be at least 18 years old to open an account.

Interest rates and fees

The interest rates of credit cards vary based on the type of card and the issuing bank. The average annual percentage rate (APR) is 20.09% but can be higher if you have a lower credit score. 

Many credit cards also come with additional fees, such as annual fees, late payment fees, and balance transfer fees. These fees can add up quickly and make the credit card much more expensive.

BNPL accounts generally don’t have interest rates. Instead, you pay an upfront fee for your purchase, while the remaining payments are spread out over several months. The upfront fee can be a flat rate or a percentage depending on the BNPL provider. 

Some BNPL providers also offer no interest if the item is paid in full within a certain period. You may be subject to late fees and other penalties for missed payments. 

Awards and benefits

Credit cards often come with additional benefits such as rewards, travel insurance, cash back, and extended warranties. Rewards can come in the form of points, miles, or cash back. 

You can redeem rewards for flights, hotels, merchandise, or gift cards. Some credit cards offer additional points for signing up and purchasing in certain categories.

BNPL accounts don't typically offer rewards, but they may offer discounts on future purchases or loyalty points with certain retailers. However, the discounts are usually limited to the retailer you purchased from. 

Credit reporting

Credit cards provide a way to build your credit score and establish good credit. When you use your card responsibly, it will reflect positively on your credit score — which is what helps you get approved for future financed purchases (mortgages, cars, etc.)

Most BNPL platforms perform a soft credit check that doesn’t affect your credit score. This is to evaluate your financial behavior and creditworthiness. However, missed payments are reported to the major credit bureaus and can cause your credit score to drop, so staying on top of your repayment schedule is crucial.

Flexibility of payment plan

Credit cards provide a line of credit that you can use for multiple purchases. You can charge items to your card until you reach the credit limit. You can pay off the full balance or make partial payments each month. The minimum payment will be a percentage of the total balance, and any remaining balance will carry over to the next billing cycle with interest. 

BNPL accounts are different because you can only pay for one item at a time, and there is no line of credit. You have the flexibility to pay the full amount up front or make partial payments each month. The payment plan may also include interest (if you don’t pay off the full balance within a certain period). 

Bear in mind that BNPL platforms may require you to pay off one purchase in full before allowing you to add another to your BNPL account.

Every payment method has its merits and drawbacks, and BNPL is no different:

Pros

• Flexibility: BNPL plans typically offer flexible repayment terms, allowing you to choose a payment plan that works for your budget. You can often select a payment plan that requires you to only make small payments over time, making it easier to manage your finances.
• Convenience: BNPL offers quick, easy checkout options that make it easier to purchase items online. This can be particularly helpful if you're short on time or don't want to enter your credit card information every time you purchase.
• Credit history: While BNPL won't help you build your credit score, it can provide a positive payment history. Establishing a payment plan with a financial institution can help you show potential lenders that you're responsible and financially savvy.

Cons

• Missed payments: If you miss a payment with BNPL, your account could be suspended or closed. This could result in late fees or other penalties, adding up quickly and making the purchase more expensive.
• Impulse spending: The convenience and flexibility of BNPL can make it easier to impulse-buy items you may not have otherwise purchased. You might find yourself buried in debt if you're not careful.
• Limits ability for loan application: Payments made on BNPL can't be included in your credit score, but it affects your credit history, which may limit your ability to take out a loan or apply for credit. Lenders like banks will consider your BNPL services when assessing you as a borrower. If your personal credit is damaged due to missed payments, this could limit your ability to get a loan.

Traditional credit cards also have their own set of pros and cons to consider:

Pros

• Rewards and incentives: Credit cards usually offer rewards and incentives, such as cashback, airline miles, or points that you can use for purchases. The rewards and incentives can help you save money on purchases, making them an attractive option for some.
• Build credit: Making payments on time with a credit card can help you build a good credit history and improve your credit score. That could make it easier for you to get favorable rates on loans, mortgages, and other forms of credit.
• Security: Credit cards provide more protection than other payment methods, such as cash or checks. If your card is lost or stolen, you can cancel it and get a replacement without liability for fraudulent purchases.

Cons

• High interest charges: Credit cards typically have higher rates than other forms of credit, such as personal loans and home equity lines. You could pay more interest if you don’t pay off your monthly balance by the due date.
• Fees: Many credit cards charge fees, such as annual fees, balance transfer fees, and late payment fees. These can add up over time and significantly increase the cost of using a credit card.
• Overspending: It’s easy to get carried away with credit cards. You should always make sure you can afford the purchases you’re making before swiping your card.

Ultimately, there is no one-size-fits-all option when it comes to payment methods. The best choice for you will depend on your situation and goals. BNPL accounts may be better suited for short-term purchases, while credit cards may be a better option if you’re looking to build credit and take advantage of rewards and incentives.

If you’re looking for flexibility and a payment plan that works with your budget, BNPL may be the way to go. You’ll have more control over the repayment process and won’t have to worry about interest rates or other fees. However, a credit card may be the better option if you’re looking to build credit and take advantage of rewards and incentives.

No matter which payment method you choose, pay your bills on time and keep track of your spending. This will help you stay on top of your finances and make sure that you’re making the best decisions for your financial health. 

Accrue Savings is an intelligent alternative to BNPL and credit cards. This program allows you to save money on your own schedule for future purchases without interest or fees. You only need to set up a free account, create a savings goal, and start saving. 

Our solution gives you more control over your finances and helps you save money without the risk of going into debt. Accrue Savings also pairs you up with your favorite brands that will give you up to 20% toward your savings goal. We help you keep track of your budget and ensure that your payments are within your means. 

With Accrue Savings, you can slow down, speed up, or pause your deposits at any time. Set up automatic transfers from your checking account into your savings account for a hassle-free, debt-free savings experience. You can also fund your account with your debit card and use one-time deposits if it’s more convenient for you!

Experience a new way to save with Accrue Savings

While BNPL and credit cards can be helpful in certain situations, Accrue Savings is a great alternative if you want flexibility and control over your finances. 

With Accrue Savings, you don’t have to worry about high-interest rates, late fees, or penalties. You can save on your own schedule and get rewards from brands you love. 

Sign up today and earn rewards while you shop with any of our growing list of partners!

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