Last Updated on 9 months by Komolafe Bamidele
Sometimes we need a helping hand in the form of money when it comes to managing our finances.
People commonly turn to buy now pay later and installment loans to help them get by until they can save up the money they need.
Both choices allow you to get your hands on cash quickly, but they have different rules for when you have to pay it back and at what interest rate.
This article will compare pay later vs installment loans, allowing you to make an educated choice based on your circumstances.
What is Buy Now Pay Later (BNPL)
Consumers may spread out the cost of large purchases into smaller, easier payments with buy now, pay later (BNPL).
Using BNPL, customers make their initial payment at checkout, and subsequent payments are automatically deducted from their designated debit, credit, or checking account until the item is completed in full.
However, there are BNPL plans available from some service providers that do not include interest charges or fees.
Consumers should read the specifics of each BNPL plan to learn about the interest rates and fees that will be charged.
What are Installment Loans?
A borrower who obtains an installment loan receives a predetermined sum of money and agrees to repay it over a certain period.
The main amount borrowed and interest accrued on the loan are both reduced by the amount paid each month toward the loan.
Loan amount, interest rate, and length of time are the primary determinants of monthly payment amounts for a loan.
The regular payment amount on an installment loan is guaranteed to be the same no matter how long the loan lasts.
Borrowers benefit from this regular payment schedule since they can more easily factor the needed payments into their monthly budgets.
The frequency of these payments is often monthly.
What are The Benefits of Buy Now Pay Later
Below are the benefits or advantages of buy now, pay later;
1. Easy repayment structure
Buy Now Pay Later (BNPL) loans often have a unique structure, with payments spread out across four installments and a few weeks.
There is no residual credit available once the loan has been paid off, unlike with a credit card.
To make automated payments, several BNPL providers ask for a debit or credit card number from customers.
This function makes things easier and reduces the likelihood of forgetting to make a payment.
The Consumer Financial Protection Bureau (CFPB) has pointed out that problems, such as overdrafts, may arise as a result of the mandatory autopay method.
2. Interest-free terms
The majority of BNPL providers do not add on interest to the principal balance, instead charging late fees alone.
Possible causes include insufficient funds in your transaction account at the time of the automatic charge or on the specified due date.
3. Auto charging
No longer do people have to wait in line at the bank or access their accounts online to arrange payments.
With BNPL services, you won’t have to worry about missed payments because money will be automatically taken out of the checking or savings account you choose at signup.
There is nothing more you need to do, and no manual labour is necessary.
4. It is convenient
Buy-now-pay-later (BNPL) providers integrated into online retailers’ checkout systems simplify transactions.
Select BNPL at the online store checkout instead of your normal credit card. That’s it.
BNPL sets up the payment plan and gives you a comprehensive email with the conditions.
After creating an account, BNPL purchases are nearly automatic.
You don’t need to find and input your credit card information. BNPL makes payment easy.
Difference Between Buy Now Pay Later vs Installment Loans
| PayLater (BNPL) | Installment Loans |
| Offered by retailers | Offered by Financial institutions (banks, credit unions) |
| Installments over a set period | Instalment Loans |
| Usually interest-free | Typically includes interest charges |
| Can be more expensive due to no interest charges | Generally has relatively low-interest rates |
| Often shorter repayment terms | Longer repayment terms |
| The total amount owed may fluctuate depending on the retailer’s sales cycles and promotions | Fixed monthly payments that remain the same throughout the loan term |
| Limited availability for specific items or promotions | Available for a wide variety of purchases |
| May have credit requirements | Open to customers with any credit rating |
Similarities Between Buy Now Pay Later vs Installment Loans
PayLater (BNPL) and Installment Loans are comparable for financing and monthly payments.
Both allow users to stretch out payments, making huge purchases more affordable.
Since they may make purchases without paying the whole amount, users can manage their monthly payments more freely.
PayLater and Installment Loans help borrowers organize their money for timely payments.
Users can budget using installment plans. Predicting payments improves budgeting and reduces stress.
What Are the Risks of Paylater or Installment Loans on Credit Reports
It’s crucial to understand the dangers associated with PayLater and Installment Loans before applying for one.
While these forms of credit can be useful for controlling costs and making purchases, they also have the potential to have a wide range of effects on a person’s credit score and report.
Payment history is a potential source of trouble. Maintaining a good credit score requires timely and regular payments.
Missed or late payments on a PayLater or Installment Loan can harm the customer’s credit.
If you are late with your payments, it might affect your credit score, making it more difficult to get credit in the future.
The utilization of credit is another potential threat.
The total amount of a customer’s used credit includes the money borrowed through PayLater and Installment Loans.
A high usage rate, especially when added to other obligations, might make borrowing money a riskier proposition.
Avoid taking on more debt than can be comfortably repaid by regularly monitoring credit use.
Which is better: A Payday Loan or Installment loan?
Payday loans and other short-term loans might seem like a good idea when people need money fast.
Installment loans, on the other hand, are often the best option due to their security and lower overall cost.
Borrowers can get into a never-ending debt spiral due to the high-interest rates and strict repayment requirements of payday loans.
Installment loans, on the other hand, are a more practical choice. Borrowers benefit from installment loans since their payments are spread out over a certain time frame.
Moreover, interest rates for installment loans are often lower than those on payday loans, resulting in lower total expenditures.
Borrowers benefit from this in two ways: they can save money and their financial footing is strengthened.