{"id":641,"date":"2021-07-19T16:12:54","date_gmt":"2021-07-19T16:12:54","guid":{"rendered":"https:\/\/paylaterguide.com\/?p=641"},"modified":"2022-01-30T15:38:15","modified_gmt":"2022-01-30T15:38:15","slug":"pay-later-vs-credit-card","status":"publish","type":"post","link":"https:\/\/paylaterguide.com\/pay-later-vs-credit-card\/","title":{"rendered":"Pay Later Apps vs Credit Cards"},"content":{"rendered":"\n
For over half a decade, credit cards have made peoples’ lives easier by allowing us to make purchases without immediate funds.<\/p>\n\n\n\n
However, repayment must occur within a specified date; otherwise, you risk incurring interest and fees – a classic problem that made national headlines during the 2008 housing crisis and is perhaps the first thing personal finance gurus tell you to steer clear of.<\/p>\n\n\n\n
If you don’t own a credit card or if it’s been rejected, you can choose a cardless option in the form of \u2018Buy Now Pay Later\u2019 – a newer form of debt that splits payments into future periods without directly involving banks.<\/p>\n\n\n\n
Before we compare pay later vs credit cards, let\u2019s take a closer look at how they work.<\/p>\n\n\n\n
When you want to pay a bill or make a purchase, these bank-issued cards can provide convenience and the potential for saving money if you earn some of the expenditures in rewards. Simultaneously, you can use them to build your credit<\/a> history through healthy monetary habits.<\/p>\n\n\n\n A credit card is a physical card that functions like a short-term loan. Once you open an account, your company sets a credit limit-the amount the company permits you to use to pay bills or make purchases.<\/p>\n\n\n\n Your accessible credit will decrease as you charge items to the card and you’ll need to repay the amount you spent from your limit to the credit card company.<\/p>\n\n\n\n You can use these cards in stores or online. In whichever case, your card’s details will reach the merchant’s bank. The bank will then obtain authorization from the credit card’s network to process the transaction.<\/p>\n\n\n\n Subsequently, the card issuer will need to verify your information and approve or decline the transaction. If transaction approval takes place, the merchant will receive payment while your card’s accessible credit decreases by the transaction amount.<\/p>\n\n\n\n At the end of a billing cycle, you’ll receive a statement from the card issuer, showing monthly transactions, your former and new balance as well as the due date and minimum payment due.<\/p>\n\n\n\n The grace period denotes the period between the purchase date on a card and the listed due date on a statement. If you pay the entire bill throughout this period, you won’t accrue any interest charges.<\/p>\n\n\n\n On the other hand, if you carry a monthly balance, the card issuer could charge you interest. Your credit card’s APR or Annual Percentage Rate mirrors the cost of carrying an annualized balance.<\/p>\n\n\n\n The APR comprises the interest rate and other expenses, for instance, the annual fee. With most cards, the APR is variable, which implies that it can change.<\/p>\n\n\n\n This model is increasingly growing popular, especially among millennials who are facing a challenging post-recession economy. Many have fallen prey to increasing debt levels, whether in the form of credit cards or student loans.<\/p>\n\n\n\n In response, many have resorted to alternatives to handle their daily spending while working towards longer-term monetary goals. One of these alternatives happens to be buy now pay later.<\/p>\n\n\n\n By breaking payments down into manageable portions, this payment plan allows you to stretch your funds to cover a bigger expense or just become smarter when it comes to budgeting for daily purchases.<\/p>\n\n\n\n Simply put, these platforms break down monetary barriers while making the payment process as seamless as possible. While this concept isn’t new, it’s consumer-friendly unlike before. For instance, most platforms don’t charge interest or hidden fees like credit cards. Furthermore, they have an instant approval process and don’t need a hard credit check<\/a> – giving consumers more breathing room.<\/p>\n\n\n\n Some platforms however will charge you a late fee in case of missed payments and you can only use the platform with businesses that provide it. Although some like Klarna<\/a> are accessible with many major retailers, their acceptance is limited when compared to credit cards.<\/p>\n\n\n\n Furthermore, if you shop at various outlets, you might find yourself juggling a couple of pay later apps. Credit cards, however, are valid at any business that accepts card payments. This technique allows approved customers-in-store or online to defer the payment of services and goods.<\/p>\n\n\n\n On the surface, credit cards and pay later apps are forms of credit – after all, both services permit you to make purchases without having money upfront. However, some key differences exist in how they function:<\/p>\n\n\n\n Although details differ slightly across providers, BPNL services typically expect you to make payments in a specified number of interest-free installments.<\/p>\n\n\n\n These services are unconnected to banks and don’t come with a piece of plastic for payments, unlike credit cards. Instead, pay later apps function more like a subscription service whereby you can sign up for an online account, and depending on the frequency of use and the provider you work with, you might or might not incur a monthly fee.<\/p>\n\n\n\n On the other hand, credit cards don’t have a stipulated repayment schedule. Instead, they have a yearly interest rate and interest-free days. This implies that if you buy something and repay within the allocated interest-free period, you won’t incur interest on that item. If you miss the interest-free period, you can expect annual interest charges.<\/p>\n\n\n\n When it comes to pay later platforms, the application process is entirely hassle-free. Credit cards however have a tedious application procedure that entails a long waiting period, unlike pay later apps, which is virtually instant and doesn’t need a hard credit check.<\/p>\n\n\n\n Most pay later apps simply require users to create an account and pay for their items instantly once they obtain approval for the service. The immediate gratification that this payment technique offers is a huge plus for gen z-ers and millennials.<\/p>\n\n\n\n When applying for a credit card, the provider or bank will examine your credit history. Beware that the check will go on your credit report, revealing approval or disapproval. That’s why it’s not recommended to apply for numerous cards within a short period.<\/p>\n\n\n\nPay Later Apps – How it Works<\/h2>\n\n\n\n
Buy Now Pay Later vs Credit Cards – The Differences<\/h2>\n\n\n\n
Repayment<\/h3>\n\n\n\n
Application Process<\/h3>\n\n\n\n
Credit Check<\/h3>\n\n\n\n