What you need to know about using multiple credit products at the same time


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You’ve probably heard the words “buy now, pay later” (BNPL) in the news or seen a BNPL option when you reach the checkout page after an online shopping session. BNPL services, which are essentially point-of-sale loans, have gained traction over the past year, with big names like Amazon partnering with Affirm (a popular BNPL provider) and Mastercard announcing the launch of its own. BNPL service.

Why has BNPL exploded in popularity? TransUnion researchers looked at nearly 4.5 million point-of-sale applicants and found that the main reasons people wanted to use BNPL were to spread their payments over time and for its ease of use.

With BNPL, a $ 200 purchase can be split into four (potentially interest-free) installments of $ 50, paid every two weeks. Plus, most popular retailers have the option built into their websites, so consumers can be approved for a loan almost instantly, as many don’t require a credit check.

The study also found that applicants were more likely to have a greater number of cards, such as credit cards and retail cards, than the general population.

“Based on this research, it appears these consumers are more credit-active and more credit-hungry,” says Liz Pagel, senior vice president of consumer loans at TransUnion. “So I think these are consumers who want to finance their retail purchases and they also want to finance other parts of their lives.”

In the study, POS loan applicants had similar credit utilization ratio levels for all risk levels. In other words, POS seekers were looking for these loans when they could make purchases on their credit card.

Should Consumers Use POS Loans When They Already Have Credit Cards? How can “credit-hungry” consumers balance multiple credit options?

We spoke with Kate Mielitz, assistant professor of family financial planning at Oklahoma State University, about how consumers should manage their credit cards and BNPL loans.

How to manage credit cards and BNPL loans

When you’re juggling regular credit card payments and bi-weekly payments for a POS loan, it can be difficult to keep track of all your spending. You’ll want to know the due dates for all of your payments and set up automatic payment to make sure you don’t miss any payments and incur late fees or high interest rates.

While some BNPL providers don’t charge interest on their POS loans, others, like Affirm, may charge up to 30%. Also, for a loan with a 0% interest rate, you could end up paying large late fees: Afterpay charges $ 8 or 25% of the transaction, whichever is less.

When it comes to your credit card, not making the minimum payment by the end of the grace period can result in late fees of up to $ 40. You will also earn interest if you don’t make the payment in full. If you’re not on time with your payments on both your BNPL loan and your credit card, you could end up paying more late fees and interest than on your initial purchases.

The other thing to consider is whether a purchase with a BNPL loan fits your long-term budget.

BNPL offers consumers instant gratification. You don’t need to have enough cash to cover the cost of a new pair of stiletto heels or an expensive exercise bike. Instead, you will receive the product immediately (as long as you have enough for a down payment) whether you can afford it or not.

Mielitz suggests that customers refrain from making purchases with a BNPL loan that they cannot afford in advance. If you don’t have enough money in your checking account to cover the costs, it’s best to skip the purchase if you can.

Finally, you need to compare and contrast the pros and cons of using a POS loan versus a credit card to finance your purchase. If you’re looking to build your credit score, it’s probably best to go with a credit card because many BNPL providers don’t report to credit bureaus, says Mielitz.

While on-time payments on your POS loans should help your score, they could actually end up hurting it. By opening a new POS loan, you decrease the average age of your credit history, which lowers your credit score.

With credit cards, you also have the opportunity to reap more rewards. The Chase Sapphire Preferred® Card currently offers a welcome bonus of 100,000 points, worth $ 1,250 if redeemed for travel, if you spend $ 4,000 within the first three months of opening the account. While some providers like Klarna offer rewards programs, you’ll likely make more money from credit card welcome bonuses and the cash back and / or points they offer for spending.

Chase Sapphire Preferred® Card

  • Awards

    $ 50 annual Ultimate Rewards Resort Credit, 5X points on travel purchased through Chase Ultimate Rewards®, 3X points on meals, 2X points on all other travel purchases, 5X points on Lyft journeys through March 2022 and 1X points on all other purchases

  • Welcome bonus

    Earn 100,000 bonus points after spending $ 4,000 on purchases in the first 3 months after opening the account

  • Annual subscription

  • Intro APR

  • Regular APR

    15.99% to 22.99% variable on purchases and balance transfers

  • Balance transfer fees

    Either $ 5 or 5% of the amount of each transfer, whichever is greater

  • Foreign transaction fees

  • Credit needed

If you’re drawn to the longer repayment period and 0% interest rates offered on some BNPL loans, you may also want to consider getting a 0% APR rate credit card – some even have a bonus of welcome and rewards. These cards have an introductory period, typically 12 to 20 months, during which cardholders will not have to pay interest on their revolving balance.

Wells Fargo’s Active MoneySM The card is one of those options. The Active Cash card has an introductory period of 15 months at 0% on new purchases and qualifying balance transfers (after that, a variable APR from 14.49% to 24.99%) and comes with a $ 200 cash rewards bonus after spending $ 1,000 in the first three months of opening an account. With this card you will get rewards such as 2% cash rewards on all qualifying purchases and get 0% APR introductory period.

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 fees

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

  • Foreign transaction fees

  • Credit needed

At the end of the line

When it comes to juggling monthly credit card payments and bi-weekly loan payments, consumers need to be clear about when payments are due, what late fees are and interest rates, if their purchases are due. fit their budget and what effect either product has on their credit score. Most importantly, you’ll need to make sure that the purchases you make with your credit card or BNPL loan are within your budget and that you can ultimately afford them.

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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