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BNPL vs. Credit Cards: What’s The Right Option For You?

For a long time, credit cards have allowed people to make purchases through the versatility of credit spending. In a nutshell, credit spending allows you to maintain greater flexibility over your personal finances, providing the opportunity to spend credit over debit and potentially even earn rewards on every purchase you make. 

But there are a wide range of different credit options available to consumers nowadays. So the question becomes ‘how do you find a credit option that’s best suited to your consumer spending habits?’. Thankfully, there are many ways to compare credit cards in Australia so you can ensure that your credit spending is perfectly aligned with your financial needs.

And then, there are other types of credit options outside of the realms of credit cards. Recently, buy now pay later (BNPL) services like Klarna, Zip, and AfterPay have grown in popularity. Like credit cards, they allow you to make purchases without having to use your debit card. 

But there are a fair few misconceptions floating out there about BNPL services. For instance, while BNPLs are often labelled as ‘interest free’, they charge various fees for their use, which include fixed monthly fees, fees per transaction, and in some cases even late payment fees. As with credit cards, the key to getting the most out of BNPL platforms is to make your payments on time. 

At the end of the day, whether a BNPL or a credit card is right for you comes down to your own circumstances. While we can’t tell you which one to choose, we can let you know why you might consider either option and help you make an informed decision. 

Why Use a Credit Card?

When choosing a payment option, it’s important to consider when you’ll actually be able to use it in day-to-day life. While acceptance of BNPLs is growing, you’re still much more likely to find stores that will accept virtually all credit cards but only some BNPL services.

Another advantage of credit cards is that they usually offer rewards for using them to make payments. These include reward points that can be redeemed at specific stores, cashbacks and zero interest plans. These benefits, and the criteria you’ll need to meet to achieve them, will differ from card to card, so it’s crucial to do some research before choosing a credit card. You’ll want to find one that best fits your buying habits. You might even opt to carry multiple credit cards and use each one situationally to maximise your benefits. 

As credit cards are also backed up by a regulatory framework (which is still being rolled out for more contemporary BNPL services) there’s an argument that credit cards are actually safer to use than BNPLs. This means that, as a customer, you get various protections with credit card spending that still aren’t really in place for BNPL services. 

One particularly important safety consideration for credit cardholders is that, if you spot a purchase that was made through your card that you don’t think you made, your credit card provider will provide much quicker assistance with investigating this potential fraud – because they’re legally obliged to. 

Finally, the terms and conditions of a credit card are typically also easier to understand than those of a BNPL, and you’re less likely to be hit with unexpected fees. Everything you need to know is on paper and provided to you as part of your credit card application.

Why Use a BNPL?

With all these pros to credit card spending, what actually is the appeal of BNPL? Truth be told, the main reason that so many Australian consumers have been turning to BNPL services in recent years is because they have lower credit ratings and may not qualify for the credit cards they’re looking to secure. Your credit score is essentially a measure of how likely banks and other institutions think you are to pay back any debts you may accrue. It is influenced by factors like timely bill payments, card payments and how many bank accounts you’ve opened. While credit card providers perform extensive background checks on you before issuing you a card, BNPLs typically maintain less stringent approval processes.

BNPLs also have a lower impact on credit score. If you can’t pay off all your debts on time, BNPLs are less likely to report you to credit agencies. You’ll just be cut off from those BNPL services, in a worst case scenario. 

Of course, it’s still best practice to pay your debts on time to avoid late fees. While the impact of late payments on your credit score isn’t as great as with credit cards, there are some BNPL services that are beginning to roll out late payment fees. You don’t want to find yourself racking up debt with any form of credit spending.

Finally, BNPLs are also praised for being a lot more flexible than credit cards. You can maintain a payment plan that’s tailored to your consumer spending habits. For instance, BNPL services like AfterPay only increase your credit limit after you’ve developed a track record of making payments on time. This method of building up your credit limit improves your chances of spending within your means. In this regard, BNPL can be seen as a great introduction to balanced credit spending, setting you up for a lifetime of positive consumer habits.

BNPL Vs. Credit Cards: What’s The Verdict?

So what is the better option for your own credit spending? Well, it really depends on where you’re at with your own credit score and consumer history. But whether you decide to go with a credit card, a BNPL service or some combination of both, the key to maintaining your financial health is to make your payments on time. Both credit cards and BNPLs can be smart options if you make sure you don’t spend more than you have and stay financially responsible. 

And once again, the choice between a credit card and a BNPL doesn’t have to be binary. There’s nothing stopping you from getting both and using whichever one best suits your needs for a particular purchase.