When is a 0% APR credit card better than a Buy Now, Pay Later loan?

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Buying an expensive Peloton bike or spending hundreds of dollars on skin care at Sephora is easier than ever with the rise of ‘buy now, pay later’ services, also known as point loans. sale (POS). With POS loans, consumers can spread the cost of their purchases in installments over several months, sometimes with 0% interest rates.

Point-of-sale loans have been the most popular among young people: A survey by LendingTree in April found that nearly 60% of Gen Z respondents surveyed had used a point-of-sale loan. This age cohort was also less likely to view the use of POS loans as a form of debt.

With an average APR on credit cards of around 16%, it’s easy to see why people opt for POS loans on the checkout page of their favorite retailers. But today, many credit cards offer an introductory 0% APR period on purchases and balance transfers, which makes us wonder what really is the best payment method.

Select explores the pros and cons of using a 0% APR credit card or POS loan for your next purchase.

Use of a 0% APR credit card

Let’s first explain what an APR is: Known as the annual percentage rate, an APR is the interest rate you are charged if your credit card balance is not paid off on time and in all in each billing cycle.

The biggest advantage of signing up for a card with a 0% APR introductory period on purchases is that you are able to maintain a balance during the specified introductory period without incurring any interest.

Some cards also come with a 0% APR introductory period on balance transfers, which allows people to transfer their outstanding balance from one credit card to another so they don’t accumulate additional interest. . This interest-free period usually lasts between 12 and 20 months.

To qualify for a 0% APR rate credit card, you will typically need a good or excellent credit score, or a score of 670 or higher. It is possible to qualify for a 0% APR credit card with fair or average credit, but you might get a shorter introductory period.

Another major benefit of a 0% APR credit card is the possibility of earning rewards. With a POS loan, you will not have the opportunity to earn a welcome bonus or get cash back on your purchase. There are many 0% APR credit cards on the market, so you can easily find one that saves you on interest and earns you a welcome bonus and cash back for your daily spending.

The Capital One SavorOne Cash Rewards credit card is a card that has an introductory period of 0% APR on purchases of 15 months (afterwards, from 15.49% to 25.49% of variable APR). It offers cardholders 3% cash back on meals and entertainment, 3% on qualifying streaming services, and 3% at grocery stores, making it a good choice for cardholders who dine regularly and attend concerts or shows. The SavorOne also has a welcome bonus of $ 200 after spending $ 500 within the first three months of opening the account.

Capital One SavourOne Cash Rewards credit card

Capital One® SavorOne® Cash Rewards credit card information was independently collected by Select and was not reviewed or provided by the card issuer prior to posting.

  • Awards

    3% cash back on meals and entertainment, 3% on qualifying streaming services, 3% at grocery stores and 1% on all other purchases

  • Welcome bonus

    Earn a one-time $ 200 cash bonus after spending $ 500 on purchases within 3 months of opening the account

  • Annual subscription

  • Intro APR

    0% introductory APR for the first 15 months of opening your account

  • Regular APR

    15.49% to 25.49% variable

  • Balance transfer fee

    3% for APR promotional offers; none for balances transferred to the regular APR

  • Foreign transaction fees

  • Credit needed

Another card you might want to consider is Wells Fargo Active Cash.SM Card, which is a 2% fixed cash reward card with an introductory period of 15 months at 0% on purchases (afterwards, 14.99% to 24.99% variable APR). This card also offers a welcome bonus of $ 200 in cash rewards after spending $ 1,000 in the first three months after opening the account.

Wells Fargo Active Cash Card℠

  • Awards

    2% unlimited cash rewards on purchases

  • Welcome bonus

    $ 200 cash rewards bonus after spending $ 1000 on purchases in the first 3 months of account opening

  • Annual subscription

  • Intro APR

    0% APR on qualifying purchases and balance transfers during the first 15 months from account opening

  • Regular APR

    14.99% to 24.99% variable on purchases and balance transfers

  • Balance transfer fee

    3% launch fee ($ 5 minimum) for 120 days from account opening, then up to 5% ($ 5 minimum)

  • Foreign transaction fees

  • Credit needed

While eligibility for a 0% APR rate credit card requires a decent credit score, using one responsibly by making payments on time can also help build your credit score. This means making sure you have a payment plan in place so that you don’t have a balance once the introductory period is over. Be aware that you may need to make a minimum payment to your card each month or risk your introductory period ending earlier by the card issuer.

Getting a new credit card in general can also lower your credit utilization rate, or the ratio of credit used to the amount of credit you’ve extended, which can also increase your credit score.

Credit cards offer protections that POS loan providers do not. If you end up buying a faulty item or scam with a credit card, you can dispute the charges due to the Fair Credit Billing Act. On the other hand, point-of-sale loan providers are not regulated in the same way, so returning items or disputing charges can be more complicated.

Using a POS loan

A POS loan may be a good choice for you if you can’t qualify for a 0% APR credit card or if you’re not looking to extend your credit beyond a single purchase, says Matt Schulz, Chief Credit Analyst at LendingTree.

Affirm, Afterpay, and Klarna are some of the most popular BNPL loan providers. They offer financing options with 0% interest rates usually on shorter repayment periods, which makes them a good choice if you can’t get a 0% APR credit card. (Afterpay doesn’t consider itself a POS loan provider because it doesn’t charge interest, but the business is still often classified as such.)

One of the most important factors to consider when obtaining a POS loan is the interest rate and fees.

Affirm has loans with interest rates of up to 30% and does not charge any late fees. Klarna may charge up to 25% of the order value as late fees. Be sure to read the fine print of your specific point of sale loan before deciding if it is right for you.

One of the main advantages of using a POS loan is that some providers ignore your credit score at all or weigh your credit score heavily when determining your eligibility for a loan. Afterpay does not check your credit history while Affirm and Klarna perform soft credit checks (although Klarna may do a thorough investigation for some loans).

If, however, you are looking to improve your credit score, POS loans might not be your best option. Some point-of-sale loan providers report your payment history to the credit bureaus, while others do not.

Affirm only reports certain loans to Experian. On the flip side, Klarna doesn’t report any of her loans interest-free, and Afterpay never reports to the credit bureaus.

However, be aware that even if you are on time with your POS loan payments, they could still end up hurting your credit score if reported to the credit bureaus. Here’s why: Every time you get a POS loan, you open a new line of credit and close it every time you pay it off. This could end up lowering the average age of your credit history and therefore lowering your credit score.

At the end of the line

When deciding whether to get a 0% APR credit card or a POS loan, there are a number of factors to consider.

First, you need to determine if your credit score is good enough to qualify for a 0% APR rate credit card. Plus, do you need additional credit beyond a single purchase? Does your POS loan have an interest rate? How much do you value the welcome bonuses and rewards offered by credit cards?

These are all questions you need to ask yourself when deciding between the two and if you make the right choice you could end up financing your purchase without paying extra interest or late fees on that exercise bike or that bike. eye cream.

Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.

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