When is a 0% 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 products at Sephora is easier than ever with buy-now-pay-later services, also known as point-of-sale (POS) loans. With POS loans, consumers can distribute the value of their purchases in installments, paid over several months, sometimes at a 0% interest rate.

POS loans were most popular among young people: A survey conducted by LendingTree In April, it emerged that nearly 60% of Gen-Z surveyed respondents had used a point of sale loan. This age group was also less likely to view the use of POS loans as a form of debt.

WITH average annual interest rate on credit cards about 16%It’s easy to see why people choose POS loans on the checkout page of their favorite stores. But today many credit cards offer an initial 0% per annum on purchases and balance transfers, which makes us wonder which payment method is really the best.

Choose explores the pros and cons of using a 0% annual interest rate credit card or POS loan for your next purchase.

Using a credit card with an annual interest rate of 0%

Let’s first explain what is Annual interest rate is: Known as the annual interest rate, the annual interest rate is the interest rate you charge if your credit card balance is not paid on time and in full on each billing cycle.

The biggest plus in getting a card with 0% annual introductory period about shopping is that you can have a balance during the specified introductory period without any interest.

Some cards also come with an introductory period of 0% per annum on balance transfers, allowing people to transfer their outstanding balance from one credit card to another in order to get a break from accruing additional interest. This interest-free period usually lasts 12 to 20 months.

To qualify for Credit card with 0% annual interest rate, you will usually need either a good or excellent credit rating, or 670 or higher. It is possible to qualify for a credit card with an annual interest rate of 0% with an acceptable or moderate credit rating, but you can get a shorter introductory period.

Another important benefit of a 0% annual interest rate credit card is the ability to earn rewards. With a POS loan, you won’t be able to earn a welcome bonus or get a refund for your purchase. There are many credit cards on the market with zero annual interest rate, so you can easily find one that will save you interest and earn you a welcome bonus and cash back for everyday expenses.

V Capital One SavorOne Cash Rewards Credit Card is a card with a 15 month start period of 0% annual interest rate for purchases (after, 15.49% to 25.49% with variable annual interest rate). It gives cardholders 3% cashback on dining and entertainment, 3% on related streaming services, and 3% on grocery stores, making it a good choice for cardholders who regularly dine out and frequent concerts or shows. SavorOne also has a $ 200 welcome bonus after spending $ 500 within the first three months of opening an account.

Capital One Credit Card SavorOne Cash Rewards

Capital One® SavorOne® Cash Rewards credit card information was self-collected by Select and has not been verified or provided by the card issuer prior to publication.

  • Awards

    3% cashback for dining and entertainment, 3% for related streaming services, 3% for grocery stores, and 1% for all other purchases

  • Welcome Bonus

    Get a one-time $ 200 cash bonus if you spend $ 500 on purchases within 3 months of opening your account.

  • Annual fee

  • April introduction

    0% starting annual interest rate for the first 15 months your account is opened

  • Regular annual interest rate

    15.49% to 25.49% variable

  • Balance transfer fee

    3% for promotional offers per annum; no for balances translated at regular annual interest rate

  • Foreign transaction fee

  • Credit required

Another card you might consider is Wells fargo active cashSM Mapwhich is a card with a fixed 2% cash reward with a 15-month initial period of 0% per annum on purchases (after, from 14.99% to 24.99% with a variable annual interest rate). This card also has a $ 200 cash welcome bonus after you spend $ 1,000 within the first three months of opening an account.

Wells Fargo Active Cash Карта

  • Awards

    Unlimited cash reward of 2% on purchases

  • Welcome Bonus

    $ 200 bonus after spending $ 1000 on purchases within the first 3 months of opening an account

  • Annual fee

  • APR introduction

    0% per annum on purchases and related balance transfers within the first 15 months from the date of account opening

  • Regular annual interest rate

    Variable from 14.99% to 24.99% for purchases and balance transfers

  • Balance transfer fee

    3% registration fee ($ 5 minimum) within 120 days of account opening, then up to 5% ($ 5 minimum)

  • Foreign transaction fee

  • Credit required

While getting a credit card with a 0% annual interest rate requires a decent credit rating, using the card responsibly and making payments on time can also help you improve your credit score. This means you have a payment plan so you don’t have any balance at the end of the introductory period. Keep in mind that you may be required to pay a minimum monthly payment on your card, otherwise you risk ending the introductory period by your card issuer.

Getting a new credit card altogether can also lower your loan utilization rateor the ratio of the used loan to the amount of the loan granted, which can also improve your credit rating.

Credit cards offer protection what POS credit providers are not… If you end up buying a defective item or credit card fraud, you may be able to dispute the payment due to Fair Credit Billing Act… On the other hand, POS credit providers are not regulated in the same way, so returning items or challenging fees can be more difficult.

POS credit use

A POS terminal loan can be a good choice for you if you can’t qualify for a credit card with a 0% annual interest rate or if you don’t want to extend your credit beyond a single purchase, explains Matt Schultz, LendingTree’s chief credit analyst.

Affirm, Afterpay and Klarna are some of the most popular BNPL loan providers. They offer financing options with a 0% interest rate, usually for shorter repayment periods, making them a good choice if you cannot get a 0% interest rate credit card. (Afterpay does not consider itself a POS loan provider because they do not charge interest, but the company is still often classified as such.)

One of the most important factors that you should consider when getting a POS terminal loan is the interest rate and fees.

Confirm has loans with interest rates up to 30% and does not charge late fees. Klarna can charge up to 25% of the order value as a penalty. Be sure to read the fine print on your particular POS terminal loan before deciding if it’s right for you.

The main benefit of using a POS loan is that some providers do not look at your credit rating at all or do not weigh your credit rating very much when determining your eligibility for a loan. Afterpay does not check your credit history while Confirmation and Klarna perform soft credit checks (although Klarna may conduct a thorough investigation into some of the loans).

However, if you are looking to improve your credit rating, POS terminal loans may not be the best option. Some POS credit providers report your payment history to credit bureaus, while others do not.

Confirm reports only some loans at Experian. On the other hand, Klarna does not report any interest-free loans, and Afterpay never reports to credit bureaus.

However, keep in mind that even if you on time with payments on your POS loans, they can still damage 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 whenever you pay it off. This can lead to a decrease in the average age of your credit history and, therefore, to a decrease in your credit rating.

Bottom line

When deciding whether you should get a credit card with an annual interest rate of 0% or a loan for a POS terminal, there are many factors to consider.

First, you should consider whether you have a good enough credit rating to qualify for a credit card with a 0% annual interest rate. Also, do you need additional credit besides a one-time purchase? Is there an interest rate on your loan for POS terminals? How much do you value credit card welcome bonuses and rewards?

These are all questions you must ask yourself when choosing between them, and if you make the right choice, you can end up financing your purchase without paying any extra interest or late fees for that exercise bike or eye cream.

Editorial note: The opinions, analyzes, reviews or recommendations expressed in this article are solely owned by the Select editors and have not been reviewed, endorsed or otherwise endorsed by any third party.

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