Here’s Why I Think Credit Cards Are a Better Deal Than ‘Buy Now, Pay Later’ Plans

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You can actually get rewarded for your purchases. 

If you’ve been hearing more about buy now, pay later plans, or BNPL plans, well, there’s a reason for it. Research from The Ascent from last year found that 50% of consumers use these plans, and 39% of those who never used one were likely to in the near future.

Now, it’s easy to see why BNPL plans appeal to so many consumers. These agreements let you pay for purchases in installments over a short period of time — usually 12 weeks or fewer. As long as you stick to the terms of your agreement, you won’t face interest charges or fees.

But I’m actually not a fan of BNPL plans at all — not for myself, and not for consumers in general. In fact, I actually think credit cards are a much better option than BNPL plans.

Why I prefer credit cards

When you finance purchases using a BNPL plan, you get the benefit of not incurring interest or fees as long as you make your payments on time. But you don’t get to rack up any cash back or rewards in the process.

When you charge expenses on your credit cards, you can get rewarded financially for everyday purchases like gas, groceries, and apparel. And that cash back can really add up. In fact, last year, I accrued more than $1,000 in cash back on the credit card I use the most.

You might argue that when you use credit cards, you face the possibility of racking up interest on your purchases if you don’t pay your bills in full. But if you’re someone who always pays their credit card bills in full by the time they’re due, then that won’t be an issue.

I also happen to think that BNPL plans give consumers a false sense of security when it comes to being able to afford purchases. The way I see it, if you’re looking to buy a $700 TV and you need to spread out your payments over three months because you can’t swing the full expense upfront, then you probably shouldn’t be buying a TV.

Rather, you should wait until you have that $700 on hand to cover the purchase. At that point, you can charge it on a credit card, get cash back or reward points on your $700 purchase, and then pay the bill in full once it comes due.

The one reason to use BNPL plans

If you have an emergency expense you need to cover right away — say, a new fridge because your current one just stopped working and can’t be fixed — then a BNPL plan could make sense. But even then, a credit card may be your better option because you get more time to pay off the purchase in question.

If a new fridge costs $1,500 and you can only afford to cover a small portion of it right now, you may not be able to finish paying it off in three months. And if you fall behind on your BNPL plan payments, you will face interest, fees, and credit score damage.

On the other hand, if you make your minimum credit card payments until your fridge is paid off in full, your credit score won’t take a hit. And yes, you’ll pay credit card interest in this scenario. But you’ll also face extra charges with a BNPL plan, so you may not be any worse off. If anything, you might be better off because you might manage to preserve your credit score and get some cash back on the purchase you had no choice but to make.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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