When is a 0% APR credit card better than a “buy now, pay later” loan?
When is a 0% APR 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 skincare at Sephora is easier than ever thanks to the rise of “buy now, pay later” services, also known as point-of-sale (POS) loans. . With POS loans, consumers can spread the cost of their purchases in installments over several months, sometimes with 0% interest rates.

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

With an average credit card APR of around 16%, it’s easy to see why people opt for point-of-sale loans on the checkout page of their favorite retailers. But today, many credit cards offer an introductory period of 0% APR on purchases and balance transfers, which makes us wonder what the best payment method really is.

Select explores the pros and cons of using a 0% APR credit card or POS loan for your next purchase.

Using a credit card at 0% APR

Let us first explain what a APR is: Known as the Annual Percentage Rate, an APR is the interest rate you are charged if your credit card balance is not paid on time and in full each billing cycle.

The biggest advantage of subscribing to a card with an introductory period of 0% APR on purchases is that you can carry over a balance during the specified introductory period without incurring interest.

Some cards also come with an introductory period of 0% APR on balance transfers, allowing people to transfer their outstanding balance from one credit card to another to get a break from accumulating. additional interest. This interest-free period generally lasts between 12 and 20 months.

To qualify for a 0% APR credit card, you’ll generally need a good or excellent credit score, or a score of 670 or higher. It’s possible to qualify for a 0% APR credit card with fair or average credit, but you might get a shorter introductory period.

Another major benefit of a 0% APR credit card is the ability to earn rewards. With a POS loan, you won’t have the opportunity to earn a welcome bonus or get cash back on your purchase. There are plenty of 0% APR credit cards on the market, so you can easily find one that saves you on interest and earns you a welcome bonus and cashback for everyday spending.

The Capital One SavorOne Cash Rewards credit card is a card that has a 15 month introductory APR period of 0% on purchases (after, 15.49% to 25.49% variable APR). It offers cardholders 3% cash back on dining and entertainment, 3% on eligible streaming services, and 3% at grocery stores, making it a good choice for cardholders who dine out regularly and go to concerts or shows. The SavorOne also has a $200 welcome bonus after spending $500 within the first three months of opening the account.

Capital One SavorOne Cash Rewards Credit Card

Capital One® SavorOne® Cash Rewards credit card information was independently collected by Select and was not reviewed or provided by the card issuer prior to publication.

  • Awards

    3% cash back on dining and entertainment, 3% on eligible streaming services, 3% on groceries, and 1% on all other purchases

  • welcome bonus

    Earn a one-time $200 cash bonus after spending $500 on purchases within 3 months of account opening

  • Annual subscription

  • Enter APR

    0% Introductory APR for the first 15 months you open your account

  • Regular APR

    14.99% – 24.99% variable

  • Balance Transfer Fee

    3% for promotional APR offers; none for balances transferred to regular APR

  • Foreign transaction fees

  • Credit needed

Another card you might consider is the Wells Fargo Active CashSM Menu, which is a 2% fixed cash reward card with an introductory period of 15 months at 0% APR on purchases from account opening (after, 15.24% – 25.24 Variable % APR; balance transfers made within 120 days are eligible for the introductory rate and 3% fee and then a balance transfer fee of up to 5%, minimum $5). This card also offers a $200 cash welcome bonus after spending $1,000 on purchases within the first three months of account opening.

Wells Fargo Active Cash℠ Card

On the Wells Fargo secure site

  • Awards

    Unlimited cash rewards of 2% on purchases

  • welcome bonus

    $200 cash rewards bonus after spending $1,000 on purchases in the first 3 months

  • Annual subscription

  • Enter APR

    0% intro APR for 15 months from account opening on eligible purchases and balance transfers; balance transfers made within 120 days qualify for the introductory rate

  • Regular APR

    15.24% to 25.24% variable APR on purchases and balance transfers

  • Balance Transfer Fee

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

  • Foreign transaction fees

  • Credit needed

Although qualifying for a 0% APR credit card requires a decent credit score, using one responsibly by making payments on time can also help build your credit rating. This means that you need to make sure you have a payment plan in place so that you don’t have a balance after the introductory period ends. Be aware that you may be required to make a minimum payment on your card each month or risk having your introductory period ended early by the card issuer.

Getting a new credit card in general can also lower your credit utilization rate, or the ratio of credit used to the amount of credit extended to you, which can also increase your credit score.

Credit cards offer protections that POS loan providers do not. If you end up buying a defective item or a scam with a credit card, you can dispute the charges due to the Fair Credit Billing Act. On the other hand, POS loan providers are not regulated in the same way, so returning items or disputing charges can be more complicated.

Use a POS loan

A POS loan may be a good choice for you if you can’t qualify for a 0% APR credit card or aren’t looking to extend your credit beyond a single purchase, says analyst Matt Schulz. head of credit at LendingTree.

Affirm, Afterpay and Klarna are among the most popular BNPL loan providers. They offer financing options with 0% interest rates typically over shorter repayment periods, making them a good choice if you can’t get a 0% APR credit card. (Afterpay doesn’t consider itself a POS loan provider because it doesn’t charge interest, but the company is still often classified as such.)

One of the most important factors to consider when getting a POS loan is the interest rate and fees.

To affirm has loans with interest rates of up to 30% and charges no late fees. Klarna can recharge 25% of the value of the order as late fees. Be sure to read the fine print of your specific POS loan before deciding if it’s right for you.

One of the main benefits of using a POS loan is that some providers don’t look at your credit score at all or weigh your credit score heavily when determining your loan eligibility. After-payment does not check your credit history while Affirm and Klarna perform soft credit checks (although Klarna may carry out an in-depth investigation for certain loans).

If, however, you’re looking to improve your credit score, POS loans might not be your best option. Some POS loan providers report your payment history to the credit bureaus, while others do not.

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

However, be aware that even if you meet your POS loan payment deadlines, they could still hurt 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 every time you pay it off. This could end up lowering the average age of your credit history and therefore lowering your credit score.

At the end of the line

When deciding whether to get a 0% APR credit card or a POS loan, you need to consider a variety of factors.

First, you need to ask yourself if you have a good enough credit score to qualify for a 0% APR credit card. Also, do you need additional credit beyond a single purchase? Does your POS loan have an interest rate? How much do you value welcome bonuses and credit card rewards?

These are all questions you should be asking yourself when deciding between the two and if you make the right choice, you could end up financing your purchase without paying any additional interest or late fees on that exercise bike or that eye cream.

Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff only and have not been reviewed, endorsed or otherwise endorsed by any third party.


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