Exploring BNPL with Credit Cards: Is It a Smart Choice or a Pricey Mistake?

"Is employing the buy now, pay later approach with your credit card effective, or could it lead to financial pitfalls? Discover the answer here."

Is using BNPL with a credit card wise?

The concept of purchasing now and paying later has long been attractive, especially for larger items—commonly known as BNPL (buy now, pay later).

Popularized by platforms like Affirm, Klarna, and Afterpay, this approach is now making significant inroads into the realm of… credit cards.

But is this really a genuine convenience, or just a cleverly disguised pitfall? Let’s explore.

What’s the process of BNPL on a credit card?

Picture this: you’ve just purchased a shiny new $800 smartphone using your credit card.

Your statement now shows, alongside the usual options to pay in full or carry a balance with interest, a new choice: divide this purchase into 6 equal payments of $140, complete with a transparent fee. That’s how BNPL works with a credit card.

Companies like American Express, Chase, and Citi already provide such options.

For instance, Amex offers Plan It, allowing you to break down purchases above a certain amount with upfront fees—no hidden costs at the end of the billing cycle. Citi has Flex Pay, while Chase features My Chase Plan.

Benefits: control, predictability, and reduced interest

The primary advantage is transparency; BNPL with credit cards provides a clear view of your monthly payment for that purchase, aiding your budget management.

Typically, the interest rates are lower than the card’s regular APR, which can soar above 20%.

In certain situations, you might even find zero-interest offers, especially for transactions with select partners or during special promotions.

Another advantage is flexibility, as you get to decide which purchases to split, utilizing the option only when it’s truly beneficial.

Drawbacks: hidden dangers and gradual debt accumulation

Using BNPL with your card can create a misleading sense of control. Rather than contemplating if you can afford the purchase now, you find yourself asking, “What will my monthly payment be?” and that’s where the risk comes in.

Before you know it, those small installments add up, and your statement is almost entirely tied up in previous months’ fixed payments, leaving little space for new purchases.

Let’s face it, BNPL is essentially debt. If you already have other installment commitments, you might find yourself juggling multiple payments at once, which can strain your finances and heighten the chance of falling behind.

Moreover, there’s the effect on your credit score. Dividing your purchases can alter your credit utilization ratio, and depending on the provider, they might perform a “hard pull” when you apply.

BNPL vs. standalone apps?

BNPL linked to your card competes directly with standalone applications such as Afterpay, Klarna, and Affirm. These apps generally follow a similar model but cater more to online shoppers and short-term payment plans (like 4x interest-free).

The advantage of using a card is that there’s no need for an extra app or separate approval for each purchase.

Everything you need is conveniently located in your banking or card app. However, some apps may offer better deals or promotions with specific partners, so comparing options is wise.

When is BNPL on a card beneficial?

Here are instances where BNPL on a card might be advantageous:

You need a big-ticket item (like a fridge) and prefer fixed payments.
The offered fee is lower than your card’s APR and fits within your monthly budget.
You have a handle on future payments and aren’t at your card’s limit.
The purchase is intentional, not spontaneous.

Pro tip: use it wisely

Much like a credit card can be your best friend or your worst enemy, the effectiveness of BNPL relies on how you manage it.
It’s not a miracle fix, but it can be a handy tool if approached with care.

Before setting up an installment plan, consider:

Do I truly need this at this moment?
Can I afford to pay the full price without straining my budget?
Will breaking the payments help me or just delay the issue?

If you approach your finances with honesty and positivity, using BNPL on your card can be a great asset. However, if it’s merely a method to extend your budget, it might be wise to pause, set the card aside, and reconsider your choices.