Buy now pay later vs credit cards: What you need to know

Updated 29/08/2023

Did you know that one in five Australian consumers have missed a buy now pay later (BNPL) repayment? Here’s what you need to know about the BNPL trend, and how it compares to credit cards…

Buy now pay later credit cards

Buy now pay later (BNPL) platforms have gained popularity over recent years as a way to pay off small purchases with a series of equal repayments.

However, with one of five Australian consumers missing repayments*, the late fees BNPL platforms are charging are cause for concern. 

So should you embrace BNPL or stick with a tried-and-tested credit card? We break down which is the better option…

Key Points

  • Buy now pay later platforms split the upfront price of a purchase into a series of equal repayments. 

  • However, buy now pay later platforms typically offer no repayment flexibility and charge high late fees.

  • Credit cards provide much higher credit limits and are more widely accepted than buy now pay later. 

  • Compare Club can help you find a low-interest credit card with the repayment flexibility to suit your budget.

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What is buy now pay later?

Buy now pay later (BNPL) platforms like Afterpay, Zip Pay and Humm allow you to avoid paying the full upfront price of an eligible purchase by splitting it into a series of equal repayments — usually about four repayments over a period of around six weeks. 

How does buy now pay later work?

In most cases, you’ll need to sign up for an online account with your chosen BNPL platform or app. For online purchases, participating retailers will usually display their BNPL payment options on the checkout page. For in-store purchases, you’ll usually need to activate the BNPL app, or use the relevant card in your digital wallet. 

Why use buy now pay later?

Buy now pay later platforms can be helpful if you want to pay off small purchases over a relatively short set period of time. 

What are the costs of buy now pay later vs credit cards?

There’s a very important difference between BNPL vs and credit cards in regards to how they charge. Credit cards typically charge interest on any of your purchases you don’t pay off within the interest-free period. Credit cards may also charge late fees if you don’t make the minimum monthly repayment on time. 

BNPL services, on the other hand, charge late fees if you don’t make the scheduled payments on time. Some BNPL services also charge an establishment fee to set up a new account and/or a monthly account fee plus a payment processing fee. Compare Club can help you find a credit card with no establishment, account or payment processing fees.

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Where can you use BNPL vs credit cards?

Credit cards are typically much more widely accepted than BNPL. For example, you can use VISA and MasterCard credit cards across a huge range of online and offline businesses — from your daily spends on groceries, bills and petrol to restaurants, entertainment venues and pretty much everywhere in between. 

You can only use BNPL at participating businesses. These tend to differ between the BNPL services you’re using. 

How much can you spend?

Credit Cards provide a set credit limit when you apply for the card. This is typically much higher than the amount you can spend on BNPL. For example, credit cards will usually give you a minimum credit limit of around $6,000, while BNPL services tend to start down around $600. 

How do repayments work?

Credit cards tend to offer more flexibility around repayments than BNPL platforms. Most credit cards ask you to pay a small percentage of the closing balance every month — usually around 2%, although Compare Club recommends you pay off the full balance every month

BNPL platforms usually want you to completely pay off your purchases in a series of equal repayments — often over about six weeks. If you miss any scheduled BNPL repayment, they’ll typically charge you a late fee for each repayment you’re late on. 

If you do prefer to pay off your purchases in equal repayments, American Express offers a Plan ItTM feature that enables you to pay off a portion of your credit card balance in equal monthly installments at 0% interest and a fixed monthly fee.

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How do you sign up for buy now pay later vs credit cards?

For BPNL, you’ll usually need to set up an online account via the website of your chosen service provider. You’ll need to provide bank account details or a debit/credit card as part of the sign-up process. 

Compare Club takes the hassle out of signing up for a credit card. We compare a range of cards side by side so it’s easy to spot the best deal for you. Simply choose the best card for you and follow the online application process. 

What are the drawbacks of buy now pay later?

BNPL late fees can get out of control fast. This can be particularly tough to manage because BNPL platforms typically offer no repayment flexibility. They’ll tell you when each of your four equal repayments are due over a set six week period. If you miss any one of these repayments — not just the final one — they’ll charge you a late fee. 

So let’s say you want to pay nothing for the first four weeks, then make the total repayments over the final two weeks. If you do that, most BNPL platforms would charge you two, or even three, late payment fees, despite the fact you’d still be making the final repayment on time. 

Buy now pay later vs credit cards: Which is better?

Credit cards are more widely accepted than BNPL services, including overseas. This tends to make credit cards more reliable for paying bills, covering your every-day expenses, and taking with you when you travel. Credit cards also typically offer a much higher credit limit, so also tend to be the better option for higher value purchases. 

Another key benefit of credit cards is the lengthy interest-free period many offer on purchases (up to 55 days) and balance transfers (up to 32 months). And if you’re willing to pay interest, credit cards will only ask for a minimum monthly repayment of about 2% of your balance. That provides much better flexibility than BNPL payment schedules.

And don’t forget rewards and bonuses! From frequent flyer points to cash back and retail vouchers, Compare Club’s experts can help you find credit cards that have the best rewards and frequent flyer cards. Compare Club is free to use and comparing cards won’t affect your credit score. 

Some credit cards and BNPL providers will charge a monthly or annual fee.  You should consider your individual circumstances in determining either product if this is appropriate for you. 

The bottom line

When it comes to BNPL vs credit cards, the bottom line is that credit cards are a much more sophisticated financial product than BNPL platforms. Typically, BNPLs are just a way to pay off small purchases over a period of about six weeks, with no repayment flexibility. 

Credit cards are more widely accepted, provide a much higher credit limit, and offer a range of other features (such as interest-free balance transfers) that can help you take control of your finances.

This guide is opinion only and should not be taken as financial advice. Check with a financial professional before making any decisions.

*ASIC, ASIC releases latest data on buy now pay later industry, published in November 2020

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