Buy Now, Pay Later Extends to Credit Cards – What You Need to Know

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As online spending becomes the norm for a significant portion of the U.S. population, buy-it-now, pay-later (BNPL) services are growing in popularity – Adobe research in March indicates BNPL revenues have soared since the start of the COVID-19 pandemic.

BNPL companies have more recently begun to offer the same convenience and interest-free installment credit card payments for in-store purchases. What does this mean for American consumers?

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Buy now, pay later plans are increasingly being offered as a convenient credit alternative that allows purchases to be made in installments, typically four payments over six weeks. Fintech (financial technology) companies offering these plans often advertise them as offering consumers interest-free payment plans that (ideally) have no negative impact on credit scores. However, as GOBankingRates recently reported, credit bureaus such as Equifax, TransUnion and Experian are looking to include BNPL consumer history in credit reports.

Consumers can use BNPL offers from companies such as Affirm, Klarna, PayPal’s Pay in 4 and Sezzle, as well as others at physical stores like Macy’s, Target and Walmart. Online retailers like Amazon are also participating.

The BNPL option was quickly adopted by traditional banks and major credit card companies to compete with existing fintech offerings. American Express (Pay It Plan It), Chase (My Chase Plan) and Citibank (Flex Pay) all offer BNPL POS card options.

Advantages and disadvantages of buying with BNPL

Adding a BNPL plan to your existing credit card can help you pay for purchases in installments without having to worry about another large upfront bill. BNPL plans can limit your tendency to overspend (although some say there is an additional tendency to overspend, due to the satisfaction that comes with instant purchase) and promise interest-free payments with low risk for your credit score is also alluring.

Popular or not, an increase in BNPL options such as credit card linking will not remove common warnings related to the use of “credit”. BNPL purchases require direct debit or credit card charges. Since each BNPL purchase comes with its own set of payment due dates – unlike the fixed payment date of a credit card bill – these ongoing deductions can easily result in additional bank charges for consumers in case of insufficient funds and overdrafts.

If you can’t afford to pay, BNPL plans have interest, penalties, and credit score impacts, just like credit cards. It is therefore crucial to research the financing conditions with these options. Additionally, many BNPL transactions do not automatically come with the return product or fraud protections offered by most credit cards.

BNPL schemes are here to stay

Regardless of the pros and cons, BNPL options are here to stay and will continue to evolve as consumers seek out more spending options (and ways to personalize their credit scores).

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According to Ahon Sarkar, managing director of banking-as-a-service (BaaS) provider Helix, BNPL cards are just the first step towards personalized hybrid credit solutions. “You’ll start to see the way we interact with credit as a society change a bit,” he said of BNPL’s emerging popularity, according to Time. “I think you’ll see these different credit instruments become more interchangeable…Over time, you’ll start to see these things become personalized for each user.”

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About the Author

David Nadelle is a freelance editor and writer based in Ottawa, Canada. After working in the energy industry for 18 years, he decided to make a career change in 2016 and focus full-time on all aspects of writing. He recently completed a technical degree in communications and holds previous university degrees in journalism, sociology and criminology. David has covered a wide variety of financial and lifestyle topics for numerous publications and has experience writing for the retail industry.