Need money for shopping on Diwali? BNPL, Personal Loan, and Credit Cards Can Help You Get Out
New Delhi: Diwali is just around the corner (November 4th) and people are already putting stuff in their shopping carts for party shopping. Covid has reduced the purchasing power of many people with job losses and wage cuts. These people can have recourse to credit to finance their festive purchases. Now people have several credit options like credit cards, Buy Now Pay Later (BNPL), and personal loans.
While credit cards offer features like universal acceptance, interest-free credit periods of up to 45 days, the ability to convert amounts payable to EMI for up to 12 months, reward points and discounts in cash, Buy Now Pay Later offers instant access to credit, interest – The free period is usually up to 15 days.
Personal loans can be ideal for situations where credit requirements are high, as personal loans have strict eligibility criteria and approval takes 1 to 2 weeks. Another advantage of personal loans is that the interest rates are lower than those of credit cards.
For the uninitiated, the BNPL device allows consumers to purchase a product and make payments later at the end of a stipulated period of time. A BNPL service allows you to purchase products from its partner merchants and make installment payments within approximately 10 to 15 days. However, if a consumer does not make the payment on time, interest charges are levied based on the amount of your bill.
Some of these BNPL programs allow customers to split a purchase into IME at no cost for three to six months, during which time the bill must be paid. Small ticket purchases of Rs 3,000 to Rs 10,000 are ideal for BNPL. Like buy now, pay off loans later, credit cards can be used at retailers.
However, credit cards can also be used to pay for gasoline, diesel, utility bill payments, and other types of expenses. If the cardholder pays their balance in full each month, they will owe no interest.
BPNL vs Credit Card vs Personal Loan
Credit cards are the best credit option if you already have one. If you don’t have a credit card, you can choose BNPL. However, if you are planning to buy on EMI, credit cards may offer a better rate than BNPL. While BNPL options only apply to a specific purchase from a specific merchant, credit cards can generally be used anywhere to make many types of purchases.
If you have a credit card, you must pay at least the minimum amount due at the end of the month. However, with buy now, pay later, you might have a three, five, or 12 month option. This means that while BNPL can offer more flexible terms, credit cards will generally offer more flexible acceptance.
BNPL’s interest rates and fees vary widely. Some options bear no interest or fees, making it essentially free financing for the consumer. This is possible because BNPL providers still make money on merchant fees embedded in the product price, just as payment networks do on interchange fees for credit cards. They either have a fixed cost or no cost and are very straightforward in showing you how much it will cost.
The longer-term loans offered by BNPL – which can last up to 48 months – typically carry a similar interest rate to a traditional personal loan. However, unlike a loan or credit card, many BNPL providers do not verify credit when approving buyers, making it easier to access finance.
Credit card issuers, on the other hand, are likely to always withdraw your credit when you apply, so depending on your credit scores, this may not be an option for you. If you already have one and plan to use it to finance a purchase, be aware that credit card interest rates are generally variable and tend to be quite high.
For large expenses like planning a reception or family reunion, a family vacation or renovating your home, etc., a personal loan might be preferable.