Why Customers Are Choosing Buy Now, Pay Later Over Credit Cards (2024)

Table of Contents

1. Introduction
2. For Better Budgeting and Cash Flow
3. To Avoid Paying Interest
4. To Reduce Credit Card Use
5. To Avoid Debt Traps
6. To Build Credit History
7. BNPL: A Powerful Purchasing Tool
8. Conclusion
9. FAQ

Introduction

Imagine you’re at the checkout of your favorite online store, ready to click “Buy Now,” but you hesitate. Should you choose the familiar credit card option or try something new like Buy Now, Pay Later (BNPL)? This dilemma is becoming increasingly common as more consumers lean towards BNPL options for their purchases. But what is fueling this shift away from credit cards?

In today’s rapidly evolving financial landscape, consumers are seeking alternatives that offer better budgeting capabilities, lower fees, and enhanced payment flexibility. Enter BNPL—a popular payment method that allows shoppers to purchase items immediately while paying for them over time without incurring interest, provided they stick to the repayment schedule.

This blog post dives deep into the reasons why consumers are migrating towards BNPL and how this payment method is reshaping the retail industry. By the end, you'll understand the key drivers behind this trend and why retailers should consider incorporating BNPL options.

For Better Budgeting and Cash Flow

One of the primary reasons consumers opt for BNPL is the ability to manage budgets more effectively. Approximately 50% of users reported that BNPL aids in easier budgeting and maintaining cash flow. Unlike traditional credit cards that come with fluctuating interest rates and late fees, BNPL provides predictable repayment schedules. These plans allow consumers to align their payments with their income, ensuring that cash is readily available for other necessities.

Think of BNPL as another tool in the consumer’s budgeting arsenal. By allowing payments to be spread out, consumers can better match their outflows with their inflows. Moreover, some BNPL providers offer limited flexibility, such as deferring payments without penalties—a feature rarely available with credit card companies.

To Avoid Paying Interest

Credit cards often come with hefty interest rates and late fees. The average credit card balance has been on the rise, reaching $6,295 in January 2024, and issuers have consistently increased late fees. In contrast, many BNPL platforms offer interest-free installment plans as long as payments are made on time. It’s a compelling reason for 32% of consumers who use BNPL to avoid the burdens of credit card interest.

Enhanced features like built-in reminders via push notifications, texts, or emails help prevent missed payments that could incur late fees. This not only reduces financial stress but also promotes timely repayments.

To Reduce Credit Card Use

For nearly 28% of surveyed consumers, BNPL serves as a tool to avoid credit card debts, minimizing worries about data breaches, incurring debt, or managing high monthly payments. Credit cards come with preset spending limits that can tempt consumers to overspend. BNPL, on the other hand, employs cautious spending limits based on a consumer’s repayment behavior, making it easier to avoid overextending financially.

For instance, if a consumer struggles with a BNPL payment, their spending power may temporarily decrease. This cautionary approach helps foster responsible spending habits.

To Avoid Debt Traps

Another significant advantage of BNPL is its structured, yet flexible repayment plans, which help consumers avoid long-term debt. About 27% of users leverage BNPL to steer clear of traditional debt traps. Unlike credit cards, where minimum payments and high-interest rates can extend debt indefinitely, BNPL’s clear-cut payment schedules make managing finances simpler.

In fact, 87% of surveyed consumers reported they don’t struggle to make their BNPL payments on time. This contrasts sharply with the credit card model. For example, a $500 balance on a credit card with a 22% interest rate can take over four years to repay if only minimum payments are made, adding nearly $280 in interest.

To Build Credit History

Interestingly, 25% of shoppers use BNPL to build their credit history. Some BNPL providers offer the option to report timely payments to major credit bureaus, which can help improve credit scores. For example, with Sezzle, consumers can opt-in to have their repayment behavior reported, adding on-time payments to their credit history.

This inclusive approach helps a broader range of consumers build a positive payment history, making future applications for credit or loans easier and more favorable.

BNPL: A Powerful Purchasing Tool

Offering BNPL as a payment option brings flexibility and empowers consumers to make responsible financial decisions. For retailers, integrating BNPL can significantly broaden the market by appealing to consumers who prefer to avoid traditional credit cards.

Retailers who adopt BNPL open up their product accessibility, allowing customers to purchase in ways that suit them best, thus ensuring no sales are missed due to payment method limitations. This mutually beneficial arrangement fosters a more inclusive shopping environment and boosts sales for retailers.

Conclusion

The shift from credit cards to BNPL is marked by a desire for better financial management, avoidance of high-interest rates, control over spending, and the ability to build credit history. As more consumers become aware of these benefits, BNPL’s popularity is set to rise even further. Retailers and consumers alike can find substantial advantages in embracing this payment method, cultivating a more balanced and financially responsible purchasing landscape.

FAQ

Q: How does BNPL affect my credit score?

A: Some BNPL providers report repayment history to credit bureaus, which can positively impact your credit score if you make timely payments.

Q: Are there hidden fees with BNPL?

A: Generally, BNPL platforms offer transparent terms. Interest and fees may apply if payments are late, but many platforms provide zero-interest plans if payments are made on time.

Q: Can I use BNPL for any purchase?

A: BNPL is widely accepted for various purchases, from retail goods to travel and services, but availability may vary by retailer and BNPL provider.

Q: What happens if I miss a BNPL payment?

A: Missing a payment could result in late fees and potentially affect your future spending limits with the BNPL provider. Many platforms offer features to remind you of upcoming payments to avoid this issue.

By making informed decisions about payment methods, consumers can better manage their finances and avoid the pitfalls associated with high-interest debt, making BNPL an increasingly attractive option.