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Tata Capital > Blog > Personal Use Loan > Personal Loan, Credit Card Or BNPL – Which One To Choose And Why?

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Personal Loan, Credit Card Or BNPL – Which One To Choose And Why?

Personal Loan, Credit Card Or BNPL – Which One To Choose And Why?

Modern customers, especially millennials and Generation Z, are searching for simple micro-credit solutions to help them better manage their recurring and unexpected expenses. These characteristics have aided the widespread use of services such as Buy Now Pay Later (BNPL), credit cards, and even personal loans. Although these services have been a part of the worldwide digital lending ecosystem for decades, the pandemic has fueled their enormous popularity with the expansion of e-commerce, increased mobile internet use, and rising redundancy of currency transactions.

BNPL vs Credit card

In terms of worldwide acceptability, credit cards surpass BNPL since the latter is presently confined to partnered merchants, although service providers continually add new partners. Credit cards also give incentives and privileges via their transactions, enabling users to save more and access other living requirements. Credit cards with higher spending limits may be available.

Personal Loans vs BNPL

Personal loan are all-purpose, unsecured borrowing choices with much greater credit limits than BNPL services. Personal loans, unlike BNPL, have higher interest rates. Another significant contrast is that BNPL offers revolving credit, while one-time personal loans do not. Furthermore, lenders consider a customer's age, income, credit score, employment, and other characteristics to establish loan eligibility, whereas pre-approved loans have a quick application process and payout. In contrast, BNPL often employs cutting-edge methods to analyse a borrower's creditworthiness in a matter of minutes.

Personal Loan Vs Credit Card

Both personal loans and credit cards are ways to borrow money. Many of the credit conditions are the same. Loan and credit card agreements often involve funds provided by a lender at a fixed interest rate and monthly payments, which include principal money and interest, late payment penalties, and quantity restrictions, to name a few. Misusing credit may harm one's credit score, making it harder to get future loans, locate suitable housing, or even find work. However, apart from the similarities between personal loans and credit cards, there are some critical differences, such as repayment terms and long-term debt. Unlike credit cards, personal loans do not allow ongoing access to cash. A borrower gets an upfront lump sum payment and has a predetermined period to repay the loan in full via periodic instalments and pay it off. This arrangement typically comes with a lower interest rate for borrowers with a decent to high credit score.

Digital Payment Facilities on All Three Key Factors:

1. To Raise Your Credit Score

Using a credit card regularly and paying your credit card bills on time and in full is one of the simplest methods to improve your credit score and credit history.

If you want to take out a larger loan in the future, such as a vehicle or a house loan, having a strong credit score will increase your chances of approval. A solid credit score can also help you acquire loans at the best interest rates, lowering your total debt load. If we talk about personal loans vs credit cards, credit cards come out on top here.

BNPL has a very stringent selection process, and it is offered only if you have a good repayment history, and that too for a low credit line.

2. Approval Process Ease

One of the most appealing aspects of Buy Now, Pay Later is that it does not need credit approval and no credit check. It is an excellent option if you have a low or no credit score. Also, if you're planning a larger loan and want to keep your credit utilisation low, Buy Now Pay Later is preferable since it does not affect your credit score.

Choosing BNPL when checking out saves time since you don't have to fill out a lengthy application or go through many approval processes. That being said, just because BNPL is widely accessible does not imply it is the best option. Using BNPL for unnecessary expenditures might cause a financial constraint and cause your monthly budget to collapse. If we talk about buy now pay later vs credit cards, buy now, pay later is the winner in this case.

3. Interest Fees

BNPL interest rates differ according to the supplier. While certain BNPL services are free of charge, some charge exorbitant interest rates of up to 45 per cent or more. Keep in mind, however, that all BNPL services charge late payment penalties if you do not refund the amount on time. If you choose the BNPL service, you are strongly advised to set up auto-pay to prevent missing payments. When it comes to credit cards, the interest costs are disclosed when the card is issued. 

Personal Loan, Credit Card or BNPL - Which One to Choose and Why?

The decision should be based on your requirements, eligibility, and payback abilities. It is important to note that you will be subject to a significant penalty if you cannot make payments on any of these three credit choices.

So, if we talk about how is BNPL different from credit cards, BPNL and credit cards are appropriate for small-ticket expenditures. If you must choose between BNPL and a credit card, the credit card is a superior option owing to its flexibility and perks, as long as it is used strategically.

However, BNPL makes sense if you need to buy a small-ticket item such as food delivery or online shopping for smaller items and can quickly return the borrowed money with your following month's income or within a few days without affecting your budget. It is called the digital "khata".

Wrapping Up

Credit cards are a good alternative if you want to increase your spending power while collecting reward points, discounts, and other value-added perks. They also help you improve your credit score and history over time. When BNPL programs do not apply, having one or two credit cards in your wallet allows you to use them.

Buy now, pay later may, on the other hand, be utilised occasionally, depending on availability and offers. If you have a significant demand that involves several costs - both scheduled and unanticipated - and you need time to repay it, a personal loan is a much better option. Apply for a personal loan with Tata Capital for a more considerable loan amount, a lower interest rate, and a flexible loan duration.

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