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According to a recent study by Bankrate, holiday shoppers 1 in 10 people plan to use the Buy Now, Pay Later (BNPL) service during the upcoming holiday season. These services (Affirm, Afterpay, Klarna, etc. for example) have skyrocketed in popularity in recent years. Insider intelligence predicts that his total BNPL transactions in the US will reach $75.6 billion this year, a 77.3% increase from the previous year.

The most common BNPL structure is 4 interest-free payments over 6 weeks. These plans may last longer, with or without interest. For example, Affirm has partnered with his Peloton to allow customers to avoid interest for up to 12 months, while the 24-, 39- and 43-month payment plans offer an APR (annualized rate) of 14.99%. Applies. Many Klarna plans are interest-free, but some plans have APRs as high as 19.99%. Afterpay recently announced that you can get loans for up to 12 months with APRs ranging from 0% to 35.99%. For reference, the average APR for credit cards is 18.67%. Interest rates on BNPL can vary widely, so it is important to evaluate the specific terms offered.

Advantages of BNPL

Many people, especially young adults and those with low credit scores, are drawn to BNPL. Avoiding interest for a period of time is certainly convincing. And these plans are generally easier to qualify than credit cards. Users also like to see the light at the end of the tunnel. Similarly, credit card debt scares many people because it can be high and drag on for an unspecified period of time. I can figure it out.

Disadvantages of BNPL

Although BNPL has some potential advantages, it also has disadvantages to consider. Impulse buying is one of them. These plans are sometimes called Reverse Layaway Finance because the customer gets the goods immediately and pays over time. Momentary gratification can lead to overspending, and mental accounting for him can be dangerous. A $200 purchase feels less important when you consider that $50 he paid four times. But it's still debt. You still have to return this money. And the actual costs can be particularly vague if you're running multiple of his BNPL plans simultaneously.

BNPL and credit cards Comparison

To be fair, credit cards can also lead to impulse purchases and overspending, and deferring payments for an extended period of time can be prohibitively expensive. If you make only minimal payments on your $5,000 balance at 18.67%, you're in debt for about 16 years and accruing about $6,400 in interest.

The best way to use a credit card is to pay the full amount and avoid interest. However, the American Bankers Association reports that less than half of active credit card accounts are paid in full each month. Credit cards offer a much better rewards program than alternative payment methods such as cash, debit cards, and BNPL. It also includes a range of buyer protections, from fraud prevention to purchase protection, extended warranties, and dispute resolution.

Returns are a pain point for many of his BNPL users. I have heard many horror stories from customers who have had trouble getting their money back in these circumstances. Credit cards have clearer dispute resolution guidelines.

In general, I think paying by credit card is the best option as long as you can pay the full amount to avoid interest. may be a viable alternative, but should be considered carefully. 4 payments over 6 weeks doesn't take long. Of course, you have to actually make the payment. Failure to do so may result in late fees and damage to your credit score. Also keep in mind that if you paid your credit card bill in full, in some cases (if you bought something early in the billing cycle) you may already have nearly two months of grace. .

Some credit cards have 0% annualized promotions that last as long as 21 months. For example, the Wells Fargo Reflect® Card has a 0% annual introductory rate for 18 months from account opening and eligible balance transfer at time of purchase. Minimum timely payment during the introductory period will extend the introductory APR for 3 months. Variation APR from 17.24% to 29.24%. If you transfer your balance within 120 days, an introduction rate and a 3% fee will apply, followed by a BT fee of up to 5% (minimum $5).

The best way to take advantage of the interest free promotion

The best way in my opinion to use the 0% balance transfer promotion is to refrain from making new purchases. Divide the amount you owe by the number of months in the interest-free period and try to stick to that fixed payment approach.

Whether it's BNPL or a credit card, in my view an interest-free period for new purchases makes the most sense if you're trying to segregate certain large purchases, especially if it's something you really need. It's suitable. For example, say you buy a new refrigerator. It may make sense to separate it from the rest of your finances and focus on making interest-free payments for that particular item.

Retailer BNPL is particularly attractive if it has a specific funding partnership. Otherwise, a credit card that offers long 0% rewards might be the best deal. But beware of deferred interest promotions. These are common on store credit cards. Basically, if you have a balance remaining at the end of the 0% period, you will be charged all applicable interest during the promotion.

Most bank-branded credit cards, including Wells Fargo Reflect, do not charge deferred interest. Any balance remaining after the Promotion Period ends will be charged interest, but not retroactively.


Both buy now pay later companies and credit card issuers offer interest-free transactions to certain customers. While these may make sense for some purchases, such as home renovations, I think financing holiday purchases this way can be risky.

Since holiday gifts are optional purchases, it is best to avoid going into debt. about these items, if possible. Some money-saving strategies include buying fewer items, hand-gifting, and/or sourcing second-hand or used items. A seemingly interest-free BNPL or credit card offer can still lead to excessive spending. In addition, late fees, interest, and damage to your credit score can accumulate if fees are not paid on time.

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