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Buy now, pay later vs. credit cards: Which should you use for your next purchase?
Whether you’re eyeing a big purchase or can’t resist an impulse buy, it’s much easier to hit the checkout button when you know you don’t have to immediately commit to the full cost.
Credit cards offer some flexibility for delayed payments — you won’t owe any fees or interest as long as you pay by your monthly due date — but the rise of buy now, pay later (BNPL) is making short-term lending more accessible and popular.
Data from the Federal Reserve Bank of Boston shows that more than three-quarters of consumers have at least heard of BNPL, and its use has grown by over 40% in the past two years. Think about the last time you shopped online — you were likely offered a BNPL plan at checkout, even if you didn’t recognize it.
“It’s coming under many different names and many different forms,” says Joanna Stavins, senior economist and policy advisor in the Federal Reserve Bank of Boston research department and author of the report above. “People might not necessarily hear the term ‘buy now, pay later,’ but if you ask them ‘Have you ever been asked to split your transaction into four installments?’ or something like that, then they’re more likely to say yes.”
BNPL services offer an alternative to credit and a simple payment structure to help finance your purchases. But they also have the potential to make it easier to overspend and contribute to Americans’ rising debt balances.
What is buy now, pay later?
Buy now, pay later works just like its name implies. When you make a purchase, you can opt into an installment plan to pay it off over time. These plans are often made up of four interest-free payments over a few weeks, with late fees if you don’t make your payments on time. Some BNPL providers also offer longer-term plans with interest rates for larger purchases.
When you check out with online retailers, you’ll likely see buy now, pay later options, though some in-store merchants now offer BNPL.
Buy now, pay later payment options
Here’s an overview of the types of plans offered by three popular BNPL companies:
Klarna
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Pay in 4: Make four interest-free payments, automatically charged every two weeks until you pay in full.
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Pay in 30 days: Pay for your purchase up to 30 days after you make it, with no up-front costs or interest.
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Pay over time: Opt into a financing plan with payments ranging from six to 24 months (these plans carry interest rates).
If your payment is more than 10 days late, you may owe a $7 late fee, though fees won’t cost more than 25% of your total purchase amount. For each payment plan option, Klarna will perform a soft credit check (which doesn’t affect your credit score).
Affirm
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Pay in 4: Make four interest-free payments every two weeks until you pay your purchase in full. You may be required to make a payment at checkout under this plan.
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Monthly installments: Make monthly payments toward your purchase over three to 60 months (depending on your specific plan) with interest charges.
Affirm doesn’t charge any fees for its payment plans, even if you make a late payment. If you opt into a monthly plan, your interest rate will vary — but you’ll know the total amount owed up-front.
Afterpay
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Pay in 4: Make four interest-free payments over six weeks (starting on your purchase date) until you pay in full.
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Pay monthly: For eligible purchases over $400 with select merchants, you can opt into a six- or 12-month payment plan with interest.
If you pay late, you can incur a fee up to $8, which won’t exceed 25% of your purchase value. For monthly payment options, you’ll take on interest charges at your assigned rate. Monthly payment plans also require a soft credit check.
Can you use a credit card for BNPL payments?
You may be able to use your credit card to make payments toward a buy now, pay later plan. Credit card payments are generally accepted for short-term pay in 4 plans, though not for longer-term installment loan plans — those typically require a debit card or linked bank account as payment methods.
You cannot, however, use a Capital One card with buy now, pay later plans. The issuer no longer allows buy now, pay later lender transactions to process on its cards — citing the potential risk for both consumers and their banks.
Buy now, pay later with your credit card
Companies like Klarna, Affirm, and Afterpay aren’t the only available BNPL options. If you have a credit card from a major issuer like American Express, Chase, or Citi, you may have access to a version of buy now, pay later through your card account.
Here are some examples of these issuers’ payment plans:
American Express Plan It
After you make a purchase of $100 or more with your Amex card, you can create an installment plan through your American Express account. Choose from up to three available plans with varying timelines and fees — you’ll know up-front how much you’ll pay in total and your monthly payment amount. When you create your plan through your online account, you can combine up to 10 qualifying purchases into one plan (plans you make through your Amex mobile app are limited to one purchase).
Payment plans don’t carry any interest charges. However, if you don’t pay at least your minimum payment due toward your card (which includes your monthly plan payment) you may risk your card’s regular late fees and penalties.
These are some American Express cards that offer Plan It:
Chase Pay Over Time
When you make an eligible purchase over $100 with your Chase card, you’ll have the option to select Pay Over Time for the charge within your online account or app. You won’t owe any interest on a Pay Over Time plan; instead, you’ll pay a fixed monthly fee. Typically, you can choose from up to three payment plans, ranging from three to 24 months and with varying monthly fees.
Your Pay Over Time plan’s monthly payment and fee is automatically added to your credit card minimum monthly payment. If you don’t pay at least that amount when your payment is due, you could risk taking on late fees or penalties.
You’ll find Chase Pay Over Time on a range of Chase credit cards, including:
Citi Flex Pay
Citi Flex Pay is available for eligible purchases you make with your Citi card totaling $75 or more. You’ll see eligible purchases when you log into your Citi account or mobile app. Then, you can see your plan options, including the exact amount you’ll owe each month. When you select a Citi Flex Pay plan, that fixed monthly payment is added to your credit card minimum payment each month. Like other issuers, you may owe your card’s regular fees or penalties if you don’t pay at least your minimum payment by the due date.
Citi credit cards with Citi Flex Pay options include:
Buy now, pay later and your credit score
Buy now, pay later plans — unlike credit cards — don’t currently affect credit score.
Your credit card issuer typically reports your account information to each of the three major credit bureaus (Equifax, Experian, and TransUnion) every month after your statement period ends. The details of issuer reporting varies — not all issuers report to every bureau, for example, and the exact reporting date is different for everyone. But you can generally assume your credit card use will appear on your credit report and factor into your credit score.
Buy now, pay later lenders don’t follow the same reporting standards. This means that your late or missed payments won’t hurt your credit (though you’ll still accrue potential late fees or penalties). It also means you cannot currently use BNPL loans to build credit.
That could change in the future. Today, each of the three credit bureaus can accept BNPL information — though most buy now, pay later lenders do not report payment information to the bureaus.
Should you use buy now, pay later?
Buy now, pay later programs and credit cards offer a similarly enticing deal: The ability to make a purchase and pay it down over time, limiting the amount you owe today.
There are risks with both. Credit cards can carry very high interest rates and fees if you don’t pay the balance in full when your monthly statement bill is due. And buy now, pay later can become costly if you fall behind throughout the payment cycle.
Be careful if you already have credit card balances — like many BNPL users. Around 40% of people who do not use BNPL carry credit card balances, the Boston Fed report shows, while a much higher 71% of BNPL users have a revolving balance.
In its 2023 study on consumers who use BNPL, the CFPB reported: “BNPL borrowers were, on average, much more likely to be highly indebted, revolve on their credit cards, have delinquencies in traditional credit products, and use high-interest financial services such as payday, pawn, and overdraft compared to non-BNPL borrowers. BNPL borrowers had higher credit card utilization rates and lower credit scores.”
If you already have existing credit card debt, think twice before you opt into a buy now, pay later plan — or put additional charges on your card. For those with a history of overspending or using a credit card to borrow more than they can afford, easy financing access could increase debt balances.
“Borrowing, even if there’s no fee right away, it’s just very costly,” Stavins says. “Pay back on schedule, don’t use it if you can’t afford it.”
Are BNPL plans safe?
From a consumer protection standpoint, BNPL services are in the spotlight. In a recent interpretive rule, the CFPB stated it classifies buy now, pay later lenders as credit card providers, calling the payment plans a “close substitute for conventional credit cards to purchase goods and services” both online or in-store.
As a result, the CFPB stated your buy now, pay later lender will need to offer you the same consumer rights and protections already required of credit card issuers.
First, the BNPL lender must investigate when you dispute a charge, and give you an option for recourse if you have an issue with the merchant you purchased from. When you make a return on a purchase you made through BNPL, you’re owed a refund as a credit to your account. And finally, BNPL lenders must issue regular billing statements for your account, just like you would typically receive each billing cycle from your credit card issuer.
Buy now, pay later vs. credit cards
Key distinctions between BNPL and credit cards include:
Approval
Credit cards often have strict standards for approval. You may not qualify for some cards unless you have an established credit history or a great credit score. The cards you can qualify for with lower credit (or none at all) are often designed for building credit and may have higher interest rates and fewer perks. Your credit card approval will generally depend on a hard credit check, which temporarily lowers your credit score.
On the other hand, BNPL plans are generally much easier to access. You may undergo a soft credit check throughout the approval process, which does not affect your credit. In many cases, you can get approved for your payment plan instantly when you choose BNPL at checkout — whereas even after credit card approval, you’ll likely have to wait for your card to arrive in the mail before making any purchases.
Usage
Buy now, pay later may be more accessible than ever, but still aren’t as widely accepted as credit card payments today. In addition to online retailers, apps from BNPL companies like Klarna and Afterpay allow you to set up digital prepaid cards, which you can connect to your mobile wallet and use in participating stores. Plus, some of these companies have begun rolling out debit cards — like the Affirm Card™ — which you can use to make a purchase and pay immediately, or opt into a payment plan (if you’re eligible).
But with a credit card, you don’t have to use your issuer’s app to determine whether a retailer accepts your card as payment. Most merchants in the US accept credit cards — whether it’s Visa, Mastercard, Discover, or American Express.
Rewards and benefits
One major benefit of credit cards over buy now, pay later is the opportunity to earn cash back, points, or miles rewards.
BNPL plans (except for forms of buy now, pay later via your credit card issuer) do not offer rewards on your spending. With today’s top cash-back credit cards, you can earn up to 2% cash back on every purchase or 5%-6% cash back in specific cash-back categories. Travel rewards credit cards can also offer major sums upwards of 3x to 5x points or more on your spending — which you can put toward future travel or transfer to your favorite airline and hotel brands.
If you have the money to pay down your purchase in full (without taking on your credit card’s high interest rate), putting it onto a credit card is a great way to maximize your spending.
Buy now, pay later vs. credit cards pros and cons
Here’s an overview of some of the biggest differences between BNPL plans and credit cards we covered above:
Buy now, pay later pros
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Easier/instant approval process
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No interest charges for pay in 4 plans
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Fixed payments
Credit card pros
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Can be used with any retailer that accepts credit cards
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Potential rewards, welcome offer, and other benefits
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Helps build credit with positive payment history and other good credit habits
Buy now, pay later cons
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Not typically reported to credit bureaus
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No rewards or added benefits and not accepted by all merchants
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Potential risks for overspending
Credit card cons
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Very high interest rates if you don’t pay balances in full
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Additional potential fees and penalties
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May be more difficult to get approved with lower credit scores
Frequently asked questions (FAQs) about BNPL vs. credit cards
What is buy now, pay later?
Buy now, pay later — also referred to as BNPL — is a payment plan companies can offer to consumers. These plans are an alternative to credit cards, though some credit card issuers also offer BNPL options for cardholders. When you make a purchase under a BNPL plan, you’ll pay it off in installments instead of paying the total cost up-front. Most plans consist of four interest-free payments over a set time period, but some BNPL providers have longer-term plans with interest rates for bigger expenses.
Why is buy now, pay later better than a credit card?
While buy now, pay later plans and credit cards have similar features, the credit score requirements and hard credit check from credit card lenders often prevent those with lower credit scores or shorter credit histories from accessing credit cards with lower interest rates or better perks.
Is it better to use a payment plan or a credit card?
Depending on your current financial situation and credit history, you may find that BNPL plans are more accessible and easier to use. However, if you already have existing credit card debt or a history of overspending, using a buy now, pay later plan can quickly become costly. Using a credit card has other benefits, too, including access to rewards and benefits and a broader availability from in-store and online retailers.
Is buy now, pay later bad for my credit score?
Unlike credit card issuers — which require a hard credit check to deny or approve your credit card application — BNPL lenders perform a soft credit check to determine your payment plan options. These soft credit checks do not impact your credit score, while a hard credit check for a credit card will temporarily lower your credit score.
However, while you can use a credit card to build credit over time, you cannot generally build credit using BNPL plans.
Is there a downside to buy now, pay later?
While BNPL plans do offer access to credit and time to pay down purchases without interest, you should always be aware of the risks before opting in. For one, you can rack up late fees if you’re unable to pay in full or on time. But even more potentially consequential is the risk of spending more than you can afford. With easy access to increased lines of credit, you may find yourself in debt you cannot pay off if you’re not careful about your budget and spending.
This article was edited by Rebecca McCracken
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