Credit cards have been there for a long time. They are used by millions of people daily. The first ever CC was issued 7 decades back. Although they were introduced in the 1980s, BNPL aka Buy Now Pay Later services have become very popular in the last 3 to 4 years.
Are BNPL platforms worth using? Are they good alternatives to CCs? Should you apply for a card or opt for the Buy Now Pay Later service?
Buy Now Pay Later vs credit cards
Activation time
The process of getting a credit card is not easy. You have to apply for the same on a banking website. Within a day or two of applying, the customer support executive of the bank will check your eligibility and will reach out to you only if you’re eligible.
BNPL service is provided by mobile payment applications such as Paytm, Freecharge, etc. The applications will display an option to activate the service. If you click on this option, you’ll be prompted to enter these details – PAN card number, your salary/earnings per month, name, etc. When you enter these details and click the submit button, the apps will scan your CIBIL/Experian records and will either activate the account or display a message that your account couldn’t be activated.
Credit limit
The credit limit you get with cards is higher than that of BNPL services. For example, my credit limit with one of the leading banks in India is Rs 180000. The BNPL limit of the same institution is Rs 15000 only. Card issuers allow users to use 95 to 99% of the credit in one go. They’ll charge an over-limit fee if the amount you owe is equal to or more than the limit assigned to your account. Even though the credit limit offered by BNPL platforms is very low, the companies may charge an exorbitant fee when you use more than 35% of the limit. This is one of the biggest drawbacks of using them.
Activation charge
I was charged Rs 590 or 1% of the limit amount when I activated my bank’s Buy Now Pay Later facility. NBFCs such as Paytm may not charge you a fee. You don’t have to pay a dime to get a CC but you’ll have to pay an annual fee of the same. The fee can be up to 1K INR for low-end cards. Some institutions offer lifetime free credit cards. You don’t have to pay annual charges if you’re using such CC.
Equated Monthly Installment
Credit Cards allow users to convert a transaction of a certain denomination into EMI. For example, you can convert purchases of Rs 1500 or more made with an ICICI bank credit card into EMI. BNPL services may not let users convert a transaction into easy monthly installments. You have to pay the full amount you owe to the Buy Now Pay Later service provider on or before the due date. If you don’t do so, you will have to pay a late fee.
CCs have shorter payment due dates than BNPL services i.e. if a statement is generated on date N, you have to make a payment within 20/22 days of the billing date. Buy Now Pay Later platforms have longer due dates of 30 to 45 days i.e. you get more time to pay your bill.
Charges
If you make a merchant payment via credit card, you won’t be charged a fee. BNPL services may charge you X amount as a convenience or usage fee if you spend more than 20% of the assigned limit.
Usage limitations
CCs can be used anywhere. For example, you can use them in hospitals, on merchant websites, stations, etc. Buy Now Pay Later services can be used to pay bills, make purchases, etc only on certain websites.
What should you use?
Both are useful services. You should get CC as well as BNPL account if you’re eligible for the same.
