Holiday Shopping: Weighing the Pros and Cons of Store Credit Cards and Buy Now, Pay Later Loans
As the holiday season approaches, many shoppers are considering their payment options. Despite high interest rates, store credit cards remain a popular choice, with 58% of surveyed shoppers preferring them over buy now, pay later (BNPL) plans, according to a new report by LendingTree.
Why Store Credit Cards Remain Attractive
Store credit cards offer a long-term, revolving line of credit, often with enticing discounts and financing deals. They may also be tied to the retailer’s loyalty program, providing bonus rewards for cardholders. Additionally, store credit cards tend to be easier to qualify for compared to other credit cards, making them an attractive option for those with limited credit history.
The Rise of Buy Now, Pay Later
However, BNPL loans are gaining popularity, particularly among younger generations. About 59% of Gen Zers and 51% of millennials prefer BNPL over retail store credit cards. BNPL loans break up the total cost of a purchase into installment payments over a set period, often with no interest charges. Some providers offer longer repayment periods, but may charge interest.
Understanding the Differences
It’s essential to understand the differences between store credit cards and BNPL loans. Store credit cards can affect your credit history, as they are reported to the three major credit bureaus. BNPL loans, on the other hand, have been somewhat “invisible” to credit bureaus, but some providers are now reporting them.
The Total Cost of Ownership
When considering either payment method, it’s crucial to think about the total cost of ownership. Both store credit cards and BNPL loans can be advantageous if used wisely, but they can also lead to debt and overspending if not managed properly. Make sure to keep track of your loans and payments, and avoid accumulating interest charges.
Expert Advice
“Paying 30% interest to save 15 or 20% doesn’t make a whole lot of sense financially,” says Matt Schulz, chief credit analyst at LendingTree. Ted Rossman, an industry analyst at Bankrate, adds, “Both of these payment methods can be advantageous depending on how you use them, but could also be a pretty slippery slope into debt and overspending.”
Make Informed Choices
This holiday season, take the time to weigh the pros and cons of store credit cards and BNPL loans. Consider your financial situation, credit history, and payment habits before making a decision. By making informed choices, you can avoid debt and overspending, and enjoy a stress-free holiday season.
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