One out of every 10 holiday shoppers plans to use a buy now, pay later (BNPL) service during the upcoming holiday season, according to a recent Bankrate survey. These services — examples include Affirm, Afterpay and Klarna — have surged in popularity in recent years. Insider Intelligence forecasts that total U.S. BNPL transaction value will hit $75.6 billion this year, which would be a 77.3 percent year-over-year increase.

The most common BNPL structure is four interest-free payments over six weeks. Sometimes these plans last longer, with or without interest. For example, Affirm has a partnership with Peloton that allows customers to avoid interest for up to 12 months, while the 24-, 39- and 43-month payment plans carry a 14.99 percent APR (annual percentage rate). Many Klarna plans are interest-free, but some charge up to 19.99 percent APR. Afterpay recently announced that financing will be available for up to 12 months at an APR ranging from 0 percent all the way up to 35.99 percent. For context, the average credit card APR is 18.67 percent. It’s critical to evaluate the specific terms that you’re offered, since BNPL interest rates can vary widely.

The pros of BNPL

Many people, especially young adults and people with lower credit scores, are drawn to BNPL. Avoiding interest for a period of time is certainly compelling. And these plans are generally easier to qualify for than credit cards. Users often like seeing the light at the end of the tunnel, too. As in, credit card debt scares a lot of people because it’s expensive and can potentially drag on for a long, unspecified amount of time. With BNPL, you know exactly how much you owe and precisely how long those payments will last.

The cons of BNPL

While BNPL offers some potential advantages, there are drawbacks to consider as well. Impulse buying is one. These plans are sometimes referred to as reverse layaway financing, because the customer gets the item now and pays for it over time. That instant gratification can lead to overspending, and mental accounting can be dangerous. A $200 purchase feels less substantial if you think of it as four payments of $50. But it’s still debt. You still need to pay this money back. And the true cost can be particularly murky when you have multiple BNPL plans running at the same time.

How BNPL compares with credit cards

To be fair, credit cards can also lead to impulse buying and overspending, and there can be a tremendous cost to stretching your payments out over time. If you only make minimum payments toward a $5,000 balance at 18.67 percent, you’ll be in debt for nearly 16 years and will owe approximately $6,400 in interest.

The best way to use a credit card is to pay in full and avoid interest. Yet fewer than half of active credit card accounts are paid in full each month, the American Bankers Association reports. Credit cards offer much better rewards programs than alternative payment methods such as cash, debit cards and BNPL. They also include many more buyer protections — everything from fraud protection to purchase protection, extended warranties, dispute resolution and more.

Returns are a pain point for many BNPL users. I’ve heard many horror stories from customers who had trouble getting their money back in these situations. Credit cards have much clearer dispute resolution guidelines.

In general, as long as you can pay in full to avoid interest, I think paying with a credit card is your best option. If you need a bit more time, I could see BNPL as a viable alternative in some situations, but tread carefully. Making four payments over six weeks doesn’t buy you all that much time. And you need to actually make the payments, of course. Otherwise, you could be subject to late fees and a damaged credit score. Remember also that if you pay your credit card bills in full, you may already have a grace period approaching two months in some cases (if you buy something early in the billing cycle).

There are some credit cards with 0 percent APR promotions that last as long as 21 months. The Wells Fargo Reflect® Card, for instance, has a 0% intro APR for 21 months from account opening on purchases and qualifying balance transfers (balance transfers made within 120 days qualify for the intro rate, BT fee of 5%, min $5). 17.99% to 29.99% Variable APR thereafter.

The best ways to use interest-free promotions

I think the best way to use a 0 percent balance transfer promotion is to refrain from making any new purchases. Simply divide what you owe by the number of months in your interest-free term and try to stick to that fixed payment approach.

Whether it’s BNPL or a credit card, an interest-free period on new purchases makes the most sense, in my view, if you’re looking to isolate a specific large purchase — especially if it’s something you really need. Let’s say you’re buying a new refrigerator, for example. It might make sense to separate that from the rest of your finances, and focus on making interest-free payments toward that specific item.

BNPL could be especially attractive if the retailer has a specific financing partnership in place. Otherwise, a credit card with a lengthy 0 percent offer might be the best deal. Beware of deferred interest promotions though. These are common on store credit cards. Basically, if you have any balance remaining at the end of the 0 percent term, they’ll charge you for all of the interest that would have applied during the promotion.

Most bank-branded credit cards, including the Wells Fargo Reflect, do not charge deferred interest. If you have a balance remaining after the promotional period ends, you’ll be charged interest moving forward on that amount, but they won’t charge interest retroactively.

The bottom line

Buy now, pay later companies and credit card issuers both offer interest-free deals to certain customers. These could make sense for some purchases, such as home renovations, but I believe that financing your holiday purchases in this fashion is risky.

Because holiday gifts are discretionary purchases, I think it’s best to avoid going into debt for these items if at all possible. Some money-saving strategies include buying fewer items, making gifts by hand and/or sourcing used or secondhand goods. Even if interest is not charged for a while, a seemingly interest-free BNPL or credit card offer could still lead to overspending. And if the charges are not paid off in time, late fees, interest charges, and credit score damage could accumulate.

Have a question about credit cards? E-mail me at and I’d be happy to help.