Flexibility and convenience are two important factors that every customer looks for when making payments, regardless of the nature of the purchase. So, to give multiple payment options, the financial landscape is continuously evolving, and we often witness advancement in this field. Buy now, Pay later, and installment loans are alternative payment methods that have gotten much attention in the current scenario.
However, many have misunderstood these methods as the same, but in reality, the situation is the other way around. They are different from each other based on multiple elements. To clarify the confusion, we focus on discussing the distinction between BPNL and Installment loans in this blog.
So, are you ready to deeply analyze both payment methods? Let’s scroll down!
What is Buy Now, Pay Later, and why currently it’s a top-trending Payment method?
Definition: A financial service lets the customers make a purchase and delays the payment for those purchases to a later date. It allows individuals to buy services or products promptly and pay for them in installments over time, usually without adding any interest changes, if cleared payment within the agreed-upon timeframe.
Why BNPL has become a top-trending Payment Method: Several reasons are making the BNPL a beneficial payment method for consumers and businesses too, but here are some of the best ones:
- Have you ever thought about how convenient and hassle-free the experience is when you don’t need any credit card or loan application form to fill out to complete the checkout process? Yes, convenience is your first benefit when you opt for BNPL.
- The second benefit that makes it a top-fit method for every type of customer is interest-free payment plans that appeal to them the most.
- It allows customers to budget more effectively by breaking down charger expenses into smaller, manageable payments.
- Unlike traditional loans or credit cards, Buy Now Pay Later mainly doesn’t require a hard credit check.
- BNPL frequently offers promotions and discounts to incentivize customers to promote their service.
- It resonates specifically with young customers who are more likely to want to avoid dealing with traditional methods.
What are Installment Loans, and Why is it beneficial for businesses?
Definition: A type of financial method where customers can pay for online purchases in fixed, periodic payments over time instead of a complete amount upfront. However, each installment payment added a portion of the principal amount borrowed and interest, calculated based on the outstanding balance.
Why are Installment Loans Beneficial for business?
Multiple elements make this payment method advantageous for consumers and businesses, but here are the top ones:
- Increase business sales as it attracts customers who are hesitant to purchase due to budget constraints.
- You will notice a record reduction in cart abandonment rates as customers are more likely to complete the purchase with flexible payment methods.
- The fixed payment structure of installment loans makes it easier for businesses to budget and manage their cash flow.
Key Differences between Buy Now, Pay Later & Installment Loans
Let’s explore some fundamental differences between buy now, pay later, and installment loans:
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Payment Structure
Buy now, pay later allows you not to have to pay for something all at once. You can buy it now and then pay it in chunks over time. You can start paying a bit right when you buy it.
Conversely, Installment loans work where you get a lump sum of money upfront and then pay it back gradually in regular payments. These payments cover the original amount you borrowed and some extra money called interest.
So, BNPL lets you spread out your payments after buying, while installment loans give you a lump sum to pay back in pieces.
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Interest & Fees
BPNL Offers a no-interest payment plan that means if you pay for your product within the timeframe the merchant fixed for you, you won’t have to give extra money on top. But you can get charged a late fee in case of any missed payments.
On the other hand, installment loans work differently as they usually have interest charges. It means you will pay back more than you borrowed in the first place. The interest adds up over the time you have the loan. So, knowing how much extra you will be paying is necessary.
So, BPNL is an excellent option for you if you can stay consistent in making payments on time.
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Credit Impact
When it comes to BNPL, it usually doesn’t impact your credit score because BNPL companies mostly don’t tell credit agencies about your payments.
On the flip side, installment loans can have a more noticeable impact on your credit. Making credit on time can improve your credit score, but if you miss the payment, the situation can be vice versa.
So, BNPL is neutral for your credit, while installment loans can make it better if you are responsible.
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Credit Checks
Buy now, pay later requires only a soft credit check or no check at all, making it accessible to a wide range of consumers, including those with limited credit histories.
However, Installment loans typically involve a thorough credit check, which may temporarily affect the borrower’s credit score. Businesses use credit checks to assess borrower’s ability to pay and determine interest rates.
So, passing a BNPL credit check is easier and kinder than installment loans as they dig deeper to know your financial competence.
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Usage
Buy now, pay later is the best for smaller and immediate purchases, especially in e-commerce, as it attracts those seeking short-term financing assistance, like those who need a product right now but don’t want to pay the total prices upfront.
Conversely, installment loans are better for bigger and planned expenses. When you are making major purchases, you might need a structured long-term plan for better finance handling.
Important Aspects to Consider When Choosing Between BNPL & Installment Loans
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Purpose of Financing
Before opting for any payment method, try to evaluate why you need the money and which plan goes well with your requirements.
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Loan Amount
Evaluate how you prefer to make payment. BNPL involves multiple smaller payments over a short period. At the same time, the other one has fixed, regular payments that may last several months over a year.
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Repayment Period
Think about how long you want to be committed to repaying the loan, as BNPL has a shorter repayment period, while installment loans can span a more extended timeframe. Ensure the duration suits your financial situation.
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Late Payment Policies
Beware of late payment policies, as BNPL may have late fees and penalties if you miss a payment. However, installment loans might have low or high fines but can also influence your credit score. So, understand the consequences properly for each method.
Wrap Up
Overall, knowing and understanding the difference between BPNL and loan payment is necessary for making informed financial decisions. BNPL offers the comfort of deferred payments, making it ideal for immediate and smaller purchases. At the same time, installment loans have structured, fixed payments suitable for larger, planned expenses.
