Buy now, pay later (BNPL) seems to be almost everywhere at this point. In stores and online, retailers give you the option of breaking down expensive purchases into smaller installments.
It’s also getting more popular with consumers, with over half of BNPL users preferring it to credit cards, according to a recent study by The Motley Fool Ascent. But even though BNPL seems convenient, it’s usually not the best way to pay for purchases. There’s another option to consider.
The best option: Use a rewards card and pay in full
The ideal way to pay for purchases is to use a rewards credit card and then pay your card in full by the due date. If you don’t have enough money to pay for a purchase, start setting aside money for it in your savings account. Only buy it once you can afford to pay for it outright. When you pay your credit card bill in full, you’re not charged any interest.
There are a few big advantages to choosing this method over BNPL. With a rewards card, you earn cash back or travel points on the purchase. For example, some of the top cash back cards earn 2% on all purchases or up to 6% in bonus categories. If you make a $500 purchase and earn 3% on it, that’s $15 in cash back. You typically don’t earn any rewards if you pay with BNPL.
Lots of rewards cards also have sign-up bonuses for new cardholders, such as a $200 bonus if you spend $1,000 in the first three months. Instead of making a large purchase with a BNPL plan, you could put it on a new rewards card and use that spending to earn a bonus.
Buy now, pay later encourages making purchases you can’t afford
One of the major problems with BNPL is that it encourages risky financial habits. Can’t afford that sofa right now? No problem — it’s also available for four smaller payments. You can do the same with clothes, electronics, and even your groceries.
It’s generally better to avoid going into debt for these types of purchases, though there are exceptions. If you need to buy a computer for work and you can’t afford to pay in full, then paying it off over time may be your only option. But if you just want a new phone, coffee maker, piece of furniture, and so on, you can save money for that over time and buy it when you have enough.
If you start using BNPL for items you don’t need, it could become a habit. Many BNPL users even start “loan stacking,” meaning they get multiple loans within a short time period. And when you’re paying off BNPL plans, you have less money available to pay bills, save, and invest for the future.
If you can’t pay in full, get a 0% APR credit card
Maybe you find yourself in a situation where you need to make an expensive purchase that you can’t pay back right away. BNPL could work for this, but there’s still probably a better option.
Instead of BNPL, try applying for a credit card with a 0% intro APR on purchases. Some of the best 0% APR cards offer 0% intro periods of 15 months or longer. You have the entire intro period to pay off your balance interest-free. BNPL services, on the other hand, often have six-week payment plans.
You get much more time to pay off what you spend with a 0% intro APR card. Many 0% intro APR cards also earn cash back, so you can get the best of both worlds.
When you’re on the fence about buying something, it can be tempting to use BNPL. That’s one of the reasons so many retailers have partnered with these services and now offer payment plans — they want you to spend more. While it may be fun in the short term to buy what you want, it’s easier to manage money if you avoid this kind of unnecessary debt.
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