Should you use Buy Now, Pay Later instead of a 0% APR credit card offer?

Buy Now, Pay Later, or a point of sale loan, lets consumers finance a purchase and pay it down -- sometimes with interest, sometimes with no interest -- over a set amount of time. 

There are plans that split a purchase into monthly payments, but a popular option is a pay-in-four plan, which means consumers split a purchase into four equal payments, usually spread across six weeks.

For example, Apple Pay Later. Apple's BNPL option offers consumers the ability to pay for a purchase using Apple Pay and then pay it off over six weeks at no interest. 

So, if a consumer buys a new MacBook for about $1,300, they could break the payment up into four payments of $325. They would make the first payment of $325 upfront, and then pay the other three every two weeks while the balance accrues no interest.

Also: Get what you want today with Affirm's Buy Now, Pay Later service.

Paying down a large purchase in several installments rather than all at once can do wonders for a budget. It allows consumers to still have the funds to make necessary purchases while staggering the payments for a larger-ticket item. And at 0% interest, there's hardly a downside, so long as all of the payments are made on time.

According to C+R Research, 60% of consumers have used BNPL, yet 66% believe it's financially risky to do so. The company's survey also found that 51% of consumers used BNPL during the pandemic, and 59% indicated they used it to purchase an unnecessary item they couldn't have afforded without doing so.

BNPL options usually entail a credit check to gauge a consumer's creditworthiness, but not all lenders do a "hard" check, which means it won't always impact your credit while undergoing the approval process. 

However, missing a payment will negatively affect your credit, and not all lenders report positive payments to the three major credit bureaus -- Equifax, Experian, and Trans Union -- which means your credit rating can go down from a BNPL plan, but it usually won't go up.

A 0% intro APR offer on a credit card lets consumers make a purchase or a balance transfer and have the balance accrue at zero interest for a set amount of time. 

Typically a balance on a credit card -- whether it was transferred from another card or created by making a new purchase -- accrues interest if you carry the balance from one billing cycle to the next depending on its APR. But with an intro 0% APR offer, consumers can make a purchase or transfer a balance from another card and pay it down while that balance accrues at no interest.

An intro APR period can run from nine months to 21 months, depending on the card. Some credit cards even offer reward programs along with an APR offer, meaning you can earn rewards while avoiding any interest charges.

An intro 0% offer is a good way to avoid interest charges on any planned, large purchases you have in mind. Combine that offer with a strong rewards card and that means money back in your pocket as you save.

However, credit cards require a hard check to apply, which means your credit will be affected any time you apply for a new card. Your credit will also go down for any missed payments, and when the introductory APR offer ends, you'll have to pay interest charges unless you pay your statement balance in full each month (something you should definitely do if you can).

That said, there is lasting value to a credit card. You can build your credit scores by paying your bill on time, and the length of open credit accounts on your credit reports also leads to healthier scores. There's also the rewards to consider, especially if you are using a credit card for necessities, such as gas and groceries.

Over the past few years, BNPL has expanded considerably. Major brands, from retailers to credit card issuers, have been creating their own BNPL plans for consumers. But what contributed to the rapid growth, particularly among younger generations? 

"A lot of these [BNPL] services are easily available when you do your online shopping, and younger consumers tend to do more of their shopping online," John Cabell, director of Banking and Payments Intelligence at J.D. Power, told ZDNet. "There's also a sense that younger consumers are typically more budget conscious and have more financial constraints. And so spreading out the payments and not paying interest seems like an attractive option."

BNPL offers a transparent way to finance a large purchase and is typically found online with popular sellers like Amazon and Apple. Consumers can choose the plan that suits their needs, and see it clearly laid out ahead of them. Transparency has been more important to consumers as the adoption of digital financing tools has increased.

"[Transparency] appeals more to a younger audience that honestly questions the status quo. 'Why should I do it this way?,'" Gaurav Sethi, head of Citizens Pay: Strategy, Product & Platform at Citizens Bank, told ZDNet. 

"And some of it is because they've experienced firsthand -- or potentially second hand through their parents -- watching some sort of credit card debt spiraling out of control, but there are also some who just aren't eligible to get a card anymore, even if they wanted one, because of the tightening of credit. So between those, either, 'I don't want a credit card' or, 'I can't get a credit card, and by the way, I don't want to get into a debt spiral,' other loans are creating this sentiment toward an easier, more transparent and responsible way to purchase and pay for things," he said.

BNPL at checkout, especially if it comes with 0% interest, makes online shopping easier. There's nothing wrong with using one plan, but it could become problematic if a consumer starts to lean heavily on point-of-sale loans for all of their shopping. Losing track of when each payment is due could end up being detrimental to a consumer's financial health.

According to Sethi, the online shopping boom during the pandemic also accelerated BNPL growth, along with a lack of trust and transparency in the credit card industry, and the inaccessibility some consumers face when applying for credit products.

"There was already a moment [of consumers saying], 'How do I pay for the larger things in a more responsible way without getting more into debt?' and BNPL affords that because it is more transparent; there are less bells and whistles and gotchas, so you know exactly what you're paying," he said.

With large, popular brands entering the space, it's providing even more visibility to Buy Now, Pay Later, which in turn leads to more consumers taking advantage of it.

"Now what we're seeing is ambiguity in terms of optionality. Where, the [brands] that were sitting on the sideline watching, are looking at these trends both pre-pandemic and during the pandemic saying, 'Well, the growth rate in this space is tremendous,'" Sethi said. "It's easily outpacing credit card growth. Not that credit cards are going away, but [BNPL] will be a strong contender. And if you're not playing, then you're not looking to be well positioned for the future."

Both products have their advantages and disadvantages. However, in terms of long-term value, credit cards provide more, thanks to their rewards, benefits, and credit building capabilities. And keep in mind, you can avoid interest charges completely with a credit card, regardless of its APR, so long as you pay off the statement balance in full every month.

That said, you can't (or shouldn't) apply for a credit card that features a 0% APR every time you need to finance a large purchase. That makes them -- in terms of avoiding interest charges -- better for planned purchases, and less so for spur-of-the-moment spending. BNPL can be a good tool to use to avoid interest charges for purchases you didn't expect to make, so long as it's used responsibly.

Just remember that as with a credit card, missing a payment will lower your credit scores. However, making a positive payment, depending on the lender, will never increase your scores. BNPL also can make spending easier, which could, in turn, lead to you spending more than you normally would on a purchase you don't need.

In addition, creating a habit of using Buy Now, Pay Later whenever you shop could lead to more debt. While it may not feel like it, it's still a loan. If a consumer is relying on these loans to make purchases through multiple lenders, it could get complicated to keep track of all the payments, and thus end up being detrimental to their overall financial wellness.

It all comes back to responsibility and how well consumers are budgeting themselves and how clear they are on all of the terms of whatever credit product they're applying for.

"To be responsible means consulting with experts when you can, so that might mean going into a branch and talking to someone about your options, or it might mean using online budgeting tools to really figure out where your money is going," Jennifer White, senior director for Banking and Payments Intelligence at J.D. Power, told ZDNet.

"There is a time and a place for BNPL. There is a time and a place for personal loans, home equity loans, and all of that. We need to make sure that today's consumer really knows that there is assistance available to them to figure out those best options. They shouldn't be afraid to use them, but it's not a bad thing to ask questions," she said.

And that responsibility doesn't merely rest with the consumer. Lenders have a responsibility to their clients to make sure that the products consumers are applying for won't damage their financial health.

"[BNPL] can be a better tool if used responsibly -- both by the consumer, and by the lender," Sethi said. "If [lenders aren't] disclosing what [their] customers are borrowing and for how much and for how long, then other lenders don't have visibility into that, and so it's hard to underwrite if you don't have the right denominator in terms of your debt."

For example, Affirm -- Amazon's only BNPL provider -- won't report payments for a BNPL plan with 0% interest or four installments to credit bureaus. Reporting not only helps to build credit, but would also show the loan on credit reports, giving other lenders a better idea of the kinds of outstanding credit a consumer may have.

"The responsible thing to do is report to the bureaus so that everyone who is underwriting knows what the debt is, and if the consumer is able to afford that debt," Sethi said. 

It could be easy, as a lender, to simply approve every Buy Now, Pay Later applicant. And so they have a responsibility to make sure that the customers who are applying for these loans can actually afford it, while at the same time it's up to consumers to do what's in their best interest as well.

"The bottom line on this is if you consider personal loans, credit cards, and BNPL, they all have a particular advantage or application that makes sense for them," Cabell said. "But they're slightly different products, and they're not completely interchangeable. But they can all get you in trouble if you are using them the wrong way and basically operating outside your budget."