How do loans stack up against BNPL and credit cards?

The finance sector is a dynamic and constantly advancing area industry. The growth in fintechs, the emergence of new non-bank lenders and innovations in online products and services have all contributed to the surge in development of a vital and highly competitive lending industry. Individuals and businesses in the market for loans, finance or credit have a range of lending options depending on the purchase.

Of particular note has been the quite dramatic increase in BNPL, buy now pay later, services. While term payments are not actually new, some whitegoods and electrical retailers have had these in-store services available for decades, the widespread nature and accessibility of BNPL is of note.

When making a myriad of purchases, especially online, buyers are offered a BNPL option. So what exactly are these services and how do they stack up against say personal loans and credit cards for major purchases? In particular we are considering our key lending sectors – cars, motorbikes, bikes and caravans and provide an analysis of the pros and cons of different credit options for you to review.

Buy Now Pay Later: Key Features

BNPL is available through a number of companies and new players are reportedly entering the market. The concept is relatively simple – it offers buyers the option of paying off the goods in instalments rather in one lump sum. This can be a great advantage for especially online retailers as it provides a way for buyers to purchase higher priced items immediately.

The advantages are quite obvious – convenience and ‘having it now’! But buyers should know what costs are involved when considering BNPL.

  • Typically advertised as no interest charges, BNPL services do charge a fee or several different fees for the service. These can include a fee to establish an account with the provider, a fee for the payment and even a monthly account fee.
  • When comparing a BNPL option with say a loan for a boat or car, note that secured loans have monthly repayments and many BNPL will offer fortnightly repayments. Ensure you’re comparing oranges with oranges.
  • Payments to BNPL may be connected to a credit card and if the credit card charge is not finalised immediately, the buyer will be up for high interest charges on the credit card. Connecting BNPL to a debit card or transaction account where possible reduces this risk.
  • When payments are missed, the default may be made as a report to credit reporting agencies and impact negatively on a credit score.
  • While convenient and seemingly instant, some BNPL providers will conduct credit checks.
  • If applying for a loan through Jade, a bank or other lender, the applicant’s BNPL history would be reviewed as part of the loan application assessment.

While typically available on lower priced goods, some BNPL providers do provide $30,000 account limits so buying a car, boat or motorbike with BNPL may be available. Tip: get a quote from Jade Finance or at least use our calculator for estimated loan repayments to compare with the costs/benefits of BNPL.

Credit Cards: Features

Credit cards are a constant part of most people’s lives, though there is an increasing trend toward debit cards. It has been reported that while under lockdown and stay at home orders due to COVID-19, many people paid off their credit card balances with money they had no opportunity to spend elsewhere. But with restrictions eased, that trend also seems to have eased with reports that many customers have been drawn back to using their card cards. With the rise in online shopping where a credit card or debit card is essential, this is probably not surprising.

When it comes to making significant, major purchases such as cars, boats, caravans and motorbikes, using a credit card may be tempting and quite possible. If the balance has been cleared and the card holder has a large credit limit sitting in their wallet it can give a false feeling of wealth. Yes, you could in reality walk into the dealership and buy that car/boat/caravan with your credit card. Sounds like a scene from a movie and probably is. In our opinion, that is where that apparition should remain.

Consider the reality of making major purchases on a credit card:-

  • While interest rates have gone done dramatically recently and the cash rate is sitting at a historic low levels, interest rates on credit cards have hardly budged. While there are low rate cards available, that low rate might be 12%. A typical credit card interest rate can be 19%. Compare that with our current interest rates on secured loans and – that says it all!
  • Credit card providers clearly show the minimum payment due each month and it is very tempting for some people to pay on that minimum. All the while the interest is building and building month after month. Because such a small amount is being paid each month, it can create a false impression that the car or boat payment is not much. Reality – it is a lot more.

If making these types of purchases using a credit card, to keep interest charges as low as possible, buyers should make significant payments each month to reduce the debt.

Secured Personal Loans

For major purchases such as cars, boats, caravans and motorbikes, Jade Finance offers secured personal loans. These loans are specifically designed for these purposes and offer many positive features and advantages when compared with purchasing these items via BNPL or on a credit card.

  • Loans can be sourced and tailored by our consultants to meet the individually requirements of our customers.
  • Our cheaper interest rates are significantly less than those available on credit cards.
  • Fixed repayment schedules are set-up to suit individual budgets and provide for both the principal and interest to be reduced over the fixed loan term. This enables customers to achieve equity in the goods over time which can be a plus at resale time.
  • While we do have minimum loan amounts, for most of our loan categories there is no maximum loan limit. So loans are available for top of the range vehicles and boats at cheap interest rates.
  • Having a secured loan and making the repayments as required, can contribute positively to a credit score. Having a high balance on a credit card or monies owed on BNPL can result in a negative impact.

To compare how our secured loans stack up against other options, just refer to our Lender Comparison Calculators or just give us a call for a quote.

If timing is a factor and you think BNPL or credit card is the faster way to go, we assure you that our quick quotes and fast approvals ensure a convenient and streamlined service.

Staying across innovations and new finance products can be a great way to build your finance knowledge and credit awareness. But finance decisions should be made from a well-informed position. We have built an extremely efficient and convenient online lending service and continue to expand our resources while adhering to our responsibilities as a responsible credit provider as licensed through ASIC.

To discuss both business and consumer finance contact Jade Finance 1300 000 008