Pay later or credit cards: which are cheaper?
Similar to a credit card, a Buy Now, Pay Later (BNPL) card allows consumers to make purchases and repay over time in installments. Both options also offer an interest-free repayment window. But, what is the need for two different products that serve the same purpose? There are key differences in the fee and reward structures of the two funding options.
The BNPL cards offered by Uni and Slice allow customers to split the outstanding bill into three equal, interest-free installments over three months. Uni allows its users to pay a minimum amount at the end of the month and carry over the remaining balance. “We take a 3-4% deferral fee from the remaining balance of that particular billing cycle when the minimum due is paid,” said Nitin Gupta, Founder and CEO of Uni. Credit cards, on the other hand, charge interest on the entire remaining balance when minimum dues are paid. Slice does not offer a minimum payment due option.
In pay later cards, if you are unable to repay the full amount after three months, you can convert the amount due into equivalent monthly installments (EMI) for a longer period. Gupta said they don’t charge interest per se, but have late fees in the event of default. “For the sake of explanation, the implied interest can vary from 16% to 40% per year depending on the amount owed and the repayment behavior of the user,” he said. The interest rate charged by credit cards on the outstanding balance is among the highest of all loans. categories at 36-42% annualized.
As for rewards, most credit cards offer rewards on every transaction that keep accumulating and can be redeemed in the form of airline miles, gift certificates, hotel reservations, etc., after collecting a certain number of points. Uni offers a fixed cashback of 1% if the full amount due is repaid before the end of the first month. Slice’s cashback program works in the form of “money”. With each transaction, the user receives the number of money equivalent to the money spent. Accumulated funds can be converted into cashback with a conversion rate of 1%, 1.5% and 2% for cash balances up to 3 lakh, between 3 and 5 lakh and over 5 lakh, respectively. For example, if a user has 1.5 lakh slices of money, he will convert it to ₹1,500 cashback (1% of 1.5 lakh).
In other smaller differences, credit cards can be used for transactions when you are abroad, which paylater cards do not allow. However, paylater cards can be used to make certain international transactions from India. Additionally, BNPL Cards offer new users a lower line of credit from ₹2,000, which increases overtime based on usage and payment behavior, while the credit limit on credit cards usually starts from ₹20,000.
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