Credit Cards vs BNPL (Buy Now Pay Later): What Works Better in 2025?

Credit Cards vs BNPL (Buy Now Pay Later): What Works Better in 2025?


In the rapidly evolving world of digital payments, consumers in India are spoilt for choice when it comes to financing their purchases. Two popular options that have gained significant traction are Credit Cards and Buy Now Pay Later (BNPL) services. It's crucial to understand the key differences between these two payment methods and determine which option aligns better with one's financial goals and spending habits.

Understanding Credit Cards and BNPL: The Basics

Credit Cards are revolving credit issued by banks or financial institutions, allowing users to borrow money up to a pre-approved limit for purchases or withdrawals. Cardholders are required to repay the borrowed amount, along with interest charges if applicable, within a specified billing cycle, typically ranging from 20 to 50 days.

Buy Now Pay Later (BNPL) is a short-term financing option that allows purchases to be paid in instalments over a fixed period, often with zero interest rates and no additional fees if payments are made in time. Popular BNPL providers in India include ZestMoney, LazyPay, and Simpl.

Credit Cards vs BNPL Features: Charges and Repayment Terms

Credit Card: Credit Cards in India typically charge high APRs on outstanding balances, ranging from 24% to 49%. They may also include annual fees, joining fees, cash advance charges, and late payment penalties. While they offer flexibility to pay a minimum amount by the due date, they also carry forward the remaining balance to the next billing cycle.

BNPL: BNPL services usually offer interest-free instalments for timely payments, but late payments can result in penalties and interest charges. Some providers may charge processing or membership fees. Payments are typically made in equated monthly instalments over a fixed tenure, usually ranging from 15 days to 24 months.

User Preferences in 2025: Trends and Shifts

In 2025, both Credit Cards and BNPL services will continue to shape the Indian payment landscape.

  • Increased Adoption of BNPL: BNPL is expected to gain popularity in India, particularly among millennials and Gen Z consumers due to its transparency, flexibility, and seamless user experience. The convenience of splitting payments without incurring interest charges is a major draw for these demographics.
  • Credit Cards Remain Relevant: Despite the growth of BNPL, Credit Cards are likely to maintain their relevance in 2025. They offer unique benefits such as rewards points, cashback, and travel perks that appeal to many consumers.
  • Hybrid Products Emerge: Hybrid products may emerge, combining Credit Card and BNPL features, offering pre-approved credit limits for easy purchases and repayments. For example, Federal Bank's Instant Credit Card.
  • Regulatory Landscape: The BNPL industry is expected to face increased regulatory scrutiny due to concerns from the Reserve Bank of India (RBI) about potential risks like over-indebtedness and lack of transparency. More guidelines and regulations are expected to protect consumer interests and ensure sustainable growth in the BNPL sector.

Buy Now Pay Later vs Credit Cards: Pros and Cons

Advantages of Credit Cards

  1. Wide acceptance : Accepted at millions of merchants worldwide, both online and offline.
  2. Rewards and perks : Many Credit Cards offer attractive rewards programs, such as cashback, points, or miles, which can help save money on purchases.
  3. Credit building : Responsible use of Credit Cards can help to build a good credit score over time.
  4. Fraud protection : Credit Cards offer robust fraud protection measures, such as zero liability for unauthorised transactions and real-time alerts.

Disadvantages of Credit Cards

  1. High interest rates : Non-payment of balance in full each month can lead to a debt trap.
  2. Annual fees : Many premium Credit Cards come with high annual fees, which may not be justified if the card isn't used frequently or benefits aren't utilised.
  3. Overspending risk : The convenience of using a Credit Card can lead to overspending and debt accumulation.
  4. Complex terms and conditions : Credit Card agreements can be lengthy and filled with jargon, making it difficult for consumers to fully understand their obligations.

Advantages of BNPL

  1. Interest-free instalments : BNPL enables the splitting of purchases into smaller, interest-free instalments, simplifying the management of cash flow.
  2. Instant approval : Unlike Credit Cards, which require a lengthy application process and credit checks, BNPL services often provide instant approval at the point of sale.
  3. Flexibility : BNPL plans come with various repayment tenures and options, allowing individuals to choose a plan that suits their budget.
  4. Credit score-friendly : Some BNPL providers do not conduct hard credit enquiries, which means using their services may not impact the credit score.

Disadvantages of BNPL

  1. Limited acceptance : BNPL services are not as widely accepted as Credit Cards, and they are mostly limited to partner merchants.
  2. Late payment fees : Missing a BNPL payment can result in hefty late fees and interest charges, which can quickly add up.
  3. Lack of regulation : The BNPL industry is relatively new and less regulated compared to Credit Cards, which can lead to potential risks for consumers.
  4. Encourages impulse buying : The ease of splitting payments may encourage some people to make impulsive purchases they cannot afford.

BNPL vs Credit Cards: Which Is the Right Option?

The choice between Credit Cards and BNPL depends on one's financial situation, spending habits, and repayment capability. Credit Cards offer rewards for disciplined spending, while BNPL offers fixed repayment terms and interest-free options. It's crucial to evaluate individual needs and read the fine print before signing up for either option.

Customers looking for a reliable banking partner to help navigate the payment choices can consider Federal Bank. With a wide range of Credit Cards and digital payment solutions, Federal Bank offers flexibility and convenience to suit one's unique requirements.