Buy now pay later (BNPL) vs credit cards ‒ what’s the best way to borrow?

We run through the pros and cons of borrowing through credit cards and buy now pay later schemes so if you have to borrow you're making an informed choice.

BNPL vs credit cards
(Image credit: Getty Images)

In an ideal world, there would be no need for credit cards or buy now pay later (BNPL) schemes.

Instead, whenever we need to spend money we could simply use the money in our bank account, or which we have saved in a savings account. But, things don’t work like that ‒ most of us will need to make use of some form of borrowing at some point.

The pressure to do so is only likely to continue in the months ahead, as inflation continues to push up the prices we pay for everything from food to energy, plus Black Friday and Christmas sales shopping is around the corner.

As Money Saving Expert Martin Lewis regularly advises: “don't borrow unless you need to. If you do need to, ensure it's a planned purchase, you can afford repayments and you'll repay as quickly as possible. If you can't afford it, don't do it.”

But if you have to borrow money, then two options you may be considering are credit cards and BNPL schemes. Both have their strengths and weaknesses, so how do you choose which is right for you?

Buy now pay later (BNPL) vs credit cards

The pros of credit cards

Stack of credit cards on top of a pile of bills and statements

(Image credit: Getty images)

One of the biggest selling points of borrowing through credit cards is that ‒ if you go for a 0% card ‒ you can pay off your debt over a longer, more manageable period.

For example, with a 0% interest purchase credit card, no interest will be charged on the money spent on the card for the length of that 0% period. These periods can be extensive, with the longest 0% purchase deal recently available at 24 months.

Alternatively, there are 0% interest balance transfer credit cards, which offer a 0% period on money moved from an existing card onto the balance transfer card. These interest-free terms can be even longer, with the top cards offering up to 34 months. 

One thing to bear in mind with balance transfer cards is that you do have to pay a transfer fee, which is calculated as a percentage of the money being moved.

What’s excellent about both purchase and balance transfer cards is that they allow you to pay off the debt in stages, with each and every penny that you pay going towards clearing the debt rather than on interest. That can provide you with some valuable breathing space and help you to get your budgets in order.

In addition, while the longest 0% deals are reserved for those with impeccable credit records, even if you have the odd black mark in your credit history, you should be able to secure a 0% card, albeit with a shorter 0% period.

What’s more, if you can clear your balance off in full each month then credit cards can offer you a little extra when you spend with them. There are cards which offer cashback or rewards points based on the money you spend.

It’s also worth remembering that spending with a credit card brings with it additional protection. The Consumer Credit Act states that when you buy something with a credit card, the card provider is ‘jointly and severally liable’ should things go wrong.

In practice, this means that if there is an issue with what you’ve bought ‒ for example, the retailer has gone bust before you’ve received your item ‒ then you can claim the money back from your credit card provider. For more, check out our guide to Section 75 protection.

Finally it’s worth bearing in mind the level of regulation in place with credit cards. The Financial Conduct Authority regulates the credit card market, meaning providers have to meet certain standards and rules. 

And if you complain about being mistreated by a credit card provider, and it fails to address your concerns, then you can take that complaint to the Financial Ombudsman Service (FOS). The FOS is a free arbitration service, and if it finds in your favour, it could force the card provider to pay you compensation.

The cons of credit cards

There are some serious downsides to bear in mind when it comes to borrowing through a credit card, however. That credit score point is an important one ‒ depending on your history, you can find it difficult to secure a 0% card, or at least one that offers a sufficiently long interest-free term for you to clear the balance.

Similarly, even if you plan to pay the card balance off in full each and every month, if your record is not exemplary then you may be turned down for a top rewards card.

If you’re borrowing with a 0% credit card, then you need to work out how much has to be paid each month in order to clear the debt before the 0% period ends. You’ll then need to be disciplined enough to stick to those payments, each and every month.

The interest charged on credit card debts can be hefty, so you want to avoid that where possible by clearing the debt during the interest-free term.

And if you’re using a rewards credit card, then it’s absolutely crucial that you pay off that debt in full every month. Failure to do so will mean that the interest charged on your outstanding balance will swiftly erode the value of any rewards you’ve earned.

While credit cards can be helpful, they do have the potential to make your situation far worse. If you only ever make the minimum payment, or simply don’t pay enough to clear the balance before a 0% period ends, your debt can swiftly snowball.

The pros of buy now pay later

Jigsaw pieces with 'Buy Now Pay Later' printed on

(Image credit: Getty images)

Buy now pay later (BNPL) schemes have become much more common in recent years, thanks to the success of providers like Klarna and Clearpay.

The idea is a simple one. You purchase something using the BNPL scheme, and then have a set term ‒ typically of up to 12 months ‒ in which to pay it off without being charged any interest.

That can be really useful if you’re buying something expensive, and need to pay it off in manageable stages. This compares well with a regular credit ‒ as opposed to a 0% card ‒ where paying the debt off in stages would mean incurring interest on the unpaid balance.

BNPL offers some additional selling points to be aware of too. Many providers will carry out only a ‘soft’ check on your credit report, meaning that no footprint is left on your report. 

As a result, using the scheme could not impact your score and therefore your chances of securing further credit, like a personal loan or mortgage. This isn’t the case across the board, though, so you’ll need to do your homework before applying for a scheme.

What’s more, for some borrowers who may have a less than perfect credit record, it might be easier to use a BNPL scheme than a 0% credit card.

The cons of buy now pay later

One of the biggest concerns around BNPL schemes is the fact that the majority are currently unregulated. As a result, providers don’t have to follow the same rules to protect borrowers that you might have if borrowing through a credit card.

Because of this, you have fewer options if there is an issue. You can’t complain to the Financial ombudsman for example, since it doesn’t oversee the BNPL market ‒ instead your only option is to convince the BNPL provider to address the situation directly.

Crucially, there’s also less protection for you as a shopper should something go wrong with the purchase. At least if you use a credit card you enjoy the Section 75 protection, meaning you can still get your money back from the card provider. 

You aren’t charged interest on a BNPL scheme, but there will be painful late fees to pay should you be late with your repayments.

The Verdict - what is the best way to borrow?

It really is worth emphasising that ideally you wouldn’t need to borrow at all, and that where possible it’s best to just spend money you already have.

But, if you absolutely have to spend and have no option but to borrow, then how should you go about it?

There certainly isn’t a uniform answer for this. It’s undoubtedly true that there are greater safeguards in place if you’re using a credit card. Providers have to follow clearer rules set by regulators, meaning that you should have some confidence in how you’re going to be treated. 

What’s more, using a credit card for purchases means that you enjoy greater protection on that spending should things go wrong, opening up other avenues for getting your money back. And from a pure budgeting perspective, you can get much greater 0% periods, allowing you to pay the balance off over a more prolonged period.

But the truth is that credit cards will not be an option for everyone. If you have a less than spotless credit record then you may not be able to obtain a lengthy 0% card, but may still qualify for a BNPL scheme. While this will allow you to spread the payments somewhat, it’s absolutely crucial that you are able to keep up with the repayments in order to avoid having to pay any fees or charges. 

You will also have to accept the fact that there is far looser regulation around BNPL, meaning that your experience could vary significantly depending on the provider you opt to use.

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John Fitzsimons
Contributing editor

John Fitzsimons has been writing about finance since 2007, and is a former editor of Mortgage Solutions and loveMONEY. Since going freelance in 2016 he has written for publications including The Sunday Times, The Mirror, The Sun, The Daily Mail and Forbes, and is committed to helping readers make more informed decisions about their money.