Credit Cards VS BNPL Apps: Eligibility, charges, advantages and disadvantages of both

Credit cards and BNPL are a form of pay later services that let you buy something and pay for it later. Let’s find out which method is preferable.

Many know about debit cards, but only a few are aware of credit cards. A credit card is a financial card issued by the bank with a pre-set credit limit, using which you can make a transaction and pay for it later when the bank issues you the bill. Similarly, BNPL apps are a type of pay later app, similar to credit cards, where a person buys something in that instant and pay for it later.

How do Credit Cards work?

It is crucial to know how credit cards work. First, a user has to go to the bank and issue a credit card. Based on the user's financial status, the bank issues a credit card with a preset credit limit based on the user's financial status.

Now, the cardholder can make any purchase within the boundaries of the credit limit. The working of a credit card involves many parties and procedures. Whenever the cardholder makes a purchase, the network checks if the cardholder has an adequate limit or not.

Upon successful verification, the bank is notified, and the bank pays the required money to the merchant and adds it to the cardholder’s credit card statement. The billing cycle for a credit card is 30 days, for example, 15 Feb to 16 March.

Upon completing one billing cycle, the bank issues the statement, and the cardholder has to pay it on time. Paying credit card bills on time will lead you to a credit score. Users usually get a few days to pay after they make a purchase, this is known as credit free period. Treat credit cards as short-term loans.

Also Read: 5 Best Travel Credit Cards In India

How do BNPL apps work?

BNPL schemes are very reliable and helpful. The working of the BNPL service is straightforward. Before doing anything, you have to sign up with the company providing pay later services. Whenever you make a purchase, there’s an option to buy now and pay later at the checkout page. A user has to choose it. Then, the lender, i.e., the company you have signed up with pays for you at that moment, and you are just required to pay a small amount. A user can repay the remaining amount in a series of monthly, weekly, or bi-weekly instalments.

Advantages of Credit card and BNPL apps

CREDIT CARDS

• It can help with shopping and heavy purchases as you have the option to pay later, either in full amount or partly. 
• You can ask your bank for the desired credit amount, or decide the credit limit according to your personal finance. 
• Credit cards help to improve credit scores and build a positive credit history. 

Also Read: Corporate Credit Cards- Dos And Don'ts 

BNPL apps

• BNPL apps are fast and easy to set up, with instant approval. 
• Many online payment applications provide BNPL apps, with either no interest or a limited free interest period. 
• Easy repayment options like through EMIs or other flexible monthly plans. 

Eligibility Criteria and Credit rates

• BNPL apps are soon becoming an option of choice in youth due to their easier eligibility criterias. 
• Owning a credit card involves a lengthy process compared to BNPL apps, and the approval also takes more time. 
• BNPL apps do not provide as high credit rates like credit cards. The overall amount is often restricted to Rs. 60,000 per year. But this is not the case for credit cards, as you can choose your higher limit and even swipe above the credit limit. 

Insurance and Concierge 

• Banks also provide perks such as holiday packages, business services, securing tickets, or personal shopping advice with credit cards. 
• BNPL apps rarely provide these perks. 
• But it’s important to note that such credit card concierge services are often only available for premium customers. 

Hidden charges 

• Credit cards often have various hidden charges like issuing fees, yearly fees, etc. 
• BNPL apps do not have such hidden charges.  
• Credit cards and BNPL can prove to be of great use to a user if used responsibly. Both of them come with advantages and disadvantages and are associated with terms and conditions, so it’s important to understand both before choosing what works best for you. 

Disadvantages of Credit card and BNPL apps

CREDIT CARDS 

• If you’re not careful, you can end up overspending while using credit cards. 
• Interest rates set up by the banks can be very high, along with due dates and terms and conditions. 
• Sometimes there are hidden charges like issuing charges etc. 

BNPL apps 

• Many retailers do not accept BNPL apps. 
• Some BNPL apps have very high late payment fees. 

Credit cards and BNPL can prove to be of great use to a user if used responsibly. Both of them come with advantages and disadvantages and are associated with terms and conditions, so it’s important to understand both before choosing what works best for you.