If I have lost you already BNPL is buy now pay later or more simply After Pay, Zip etc.
The LifeStyler has always been a credit card guy and fortunately does not have a credit rating issue.
However, it got me thinking if you buy something and you do have a credit rating that enables you to get a credit card, which is best for your back pocket. Buying with a credit card to buying with BNPL?
The basics of each method are as follows:
A credit card allows you to buy stuff up to a credit limit and if you pay it off when it is due you do not pay any interest. Most cards offer up to 55 days interest-free which means you have 24 odd days to pay for your goods after a month-end statement arrives.
If we take the Afterpay model you buy a product pay 25% of the value straight away then another 25% at the 2-week mark, 25% at 4-week mark and last payment of 25% at 6-week mark. The BNPL model allows less creditworthy people to essentially get credit.
Both models if you fail to pay by required dates then you start paying extra.
If we assume that you pay off both your Afterpay and credit card debt in the required time which one is better for your back pocket? If I also assume you buy products all through the month then we should take the middle of the month as the comparison point for a credit card. Now without boring you with some fancy maths the result is interesting.
If I bought something for $100 and I had that $100 in a bank account earning 2% which you can still get on a bonus saver online account. I would earn 23 cents interest on the credit card transaction is not paying upfront with cash. For Afterpay I would earn 11.5 cents interest on deferring my payments to their schedule.
Thus the net result is I would be twice as well off by using a credit card versus BNPL (Afterpay in this calculation).
Note: This is not financial advice, you should seek your own advice on payment options, and determine what’s best to suit your own personal circumstances, this information is presented for your consideration only
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