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 skin care products at Sephora is easier than ever thanks to increasing “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, occasionally with 0% interest.

POS loans are most popular with young people: A survey by LendingTree in April found that nearly 60% of Gen-Z respondents surveyed had used a point-of-sale loan. This age cohort also less often viewed the use of POS credit as a form of debt.

With an average APR on credit cards around 16%, it’s easy to see why the people on the checkout page of their preferred retailers choose point-of-sale loans. But today many credit cards offer an introductory phase of 0% APR for purchases and credit transfers, which leads us to wonder which payment method is really the better one.

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

Using a credit card with 0% APR

Let us first explain what an APR is: An APR is the interest rate you will be charged if your credit card balance is not paid out on time and in full in each billing cycle.

The biggest benefit of signing up for a card with an introductory period of 0% APR is that you can hold funds without incurring interest during the indicated introductory period.

Some cards also have a 0% APR introductory period on balance transfers, which allows users to transfer their outstanding balance from one credit card to another for a break from additional interest. This interest-free period usually lasts between 12 and 20 months.

To qualify for a 0% APR credit card, you usually need to have either good or excellent credit or a score of 670 or higher. It is possible to qualify for a 0% APR credit card with fair or average credit, but you may get a shorter introductory period.

Another great benefit of a 0% APR credit card is the ability to earn rewards. With a POS loan, you do not have the option of earning a welcome bonus or getting money back on your purchase. There are many 0% APR credit cards on the market so you can easily find one that will save you interest and give you a welcome bonus and cashback for your daily expenses.

The Capital One SavorOne Cash Rewards credit card is a card with a 15-month introductory period of 0% APR for purchases (thereafter 15.49% to 25.49% of the variable APR). Cardholders get 3% cashback on restaurants and entertainment, 3% on eligible streaming services, and 3% on grocery stores, making them a great choice for cardholders who dine out regularly and often 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

Information regarding the Capital One® SavorOne® Cash Rewards Credit Card has been independently collected by Select and has not been verified or provided by the card issuer prior to publication.

  • reward

    3% cashback on food and entertainment, 3% on eligible streaming services, 3% in grocery stores, and 1% on all other purchases

  • Welcome bonus

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

  • annual fee

  • Introduction of APR

    0% introductory APR for the first 15 months your account is open

  • Regular annual interest

    15.49% to 25.49% variable

  • Transfer fee for the credit

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

  • Foreign transaction fee

  • Credit needed

Another card that you might want to consider is the Wells Fargo Active CashSM Card, which is a flat rate reward card of 2% with a 15-month introductory phase of the APR of 0% for purchases (afterwards 14.99% to 24.99% of the variable APR). This card also offers a $ 200 welcome bonus after spending $ 1,000 within the first three months of opening your account.

Wells Fargo Active Cash℠ card

  • reward

    Unlimited 2% cash rewards on purchases

  • Welcome bonus

    $ 200 cash reward bonus after spending $ 1,000 on purchases in the first 3 months after opening an account

  • annual fee

  • Introduction of APR

    0% APR on purchases and qualifying credit transfers for the first 15 months after account opening

  • Regular annual interest

    14.99% to 24.99% variable for purchases and credit transfers

  • Transfer fee for the credit

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

  • Foreign transaction fee

  • Credit needed

While qualifying for a 0% APR credit card requires decent creditworthiness, managing a credit card responsibly by making timely payments can also help you build your credit score. This means that you have a payment plan so that you run out of credit after the introductory phase is over. Note that you may have to make a minimum payment on your card every month or that you risk your introductory phase being terminated prematurely by the card issuer.

Purchasing a new credit card can also generally decrease your credit usage or the ratio of the credit used to the loan amount granted, which can also increase your credit score.

Credit cards provide protection that POS credit providers do not. If you end up buying a faulty or fraudulent item with a credit card, you can dispute the charge under the Fair Credit Billing Act. POS credit providers, on the other hand, aren’t regulated in the same way, so returning items or challenging fees can be more complicated.

Using a POS loan

A POS loan can be a good choice for you if you can’t qualify for a 0% APR credit card, or if you don’t want to expand your credit beyond a single purchase, said Matt Schulz, senior credit analyst at LendingTree.

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

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

Affirm has loans with interest rates up to 30% and does not charge interest on late payments. Klarna can charge late fees up to 25% of the order value. Make sure to read the fine print on your specific POS loan before deciding if it is right for you.

A great benefit of using a POS loan is that some providers do not consider your creditworthiness at all or do not weight your creditworthiness heavily when determining your eligibility for a loan. Afterpay doesn’t check your credit history, while both Affirm and Klarna do soft credit checks (although Klarna does a hard query for some loans).

However, if you are looking to improve your credit score, POS lending may not be the best option. Some POS credit providers report your payment history to the credit bureaus, while others do not.

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

Be warned, however, that even if you make payments for your POS loans on time, they can affect your creditworthiness if they are 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 when you pay it off. This could cause the average age of your credit history, and therefore your creditworthiness, to drop.

Bottom line

There are a number of factors you should consider when deciding whether to get a 0% APR credit card or a POS loan.

The first thing you should consider is whether you have sufficient creditworthiness to qualify for a 0% APR credit card. Do you also need additional credit beyond a single purchase? Does your POS loan have an interest rate? How high do you rate the welcome bonuses and rewards from credit cards?

These are all questions to ask yourself when deciding between the two, and if you make the right choice, you can end up funding your purchase without paying additional interest or late fees on the exercise bike or eye cream.

Note to editors: Opinions, analyzes, reviews or recommendations expressed in this article are those of the Select editorial team and have not been reviewed, approved or otherwise endorsed by third parties.


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