Modern payment options and how they work: BNPL vs. a personal loan

When you need to borrow, it's nice to know that you have options. Different solutions could meet different needs. 

For example, if you want to consolidate credit card debt or give your kitchen a much-needed makeover, personal loans could help you reach those goals. If you need a short-term loan to pay for things you buy online, you might turn to buy now, pay later (BNPL) instead.  

Both could help you pay for things you need, but they're not the same. Let's look at the differences between BNPL vs. personal loans and when to use each one. 

BNPL gives you more time to pay

Buy now, pay later is just what it sounds like. You could buy things now and pay them off at a later date. 

When you make a purchase, you make a small initial payment against the balance. You pay the rest off in installments.

For example, say you want to buy a $200 pair of shoes. You might pay $50 at checkout and then have the option of making three additional installment payments of $50 each, spread out over six weeks. 

This type of buy now, pay later plan is called a pay-in-four, since you pay off the balance in four installments. There's no interest and no fees, as long as you make all four payments on time. 

Some buy now, pay later providers give you longer to pay. You might have up to 60 months to pay off purchases, with interest. Rates could range from 0% to 36%. 

Personal loans offer flexibility

What is a personal loan? It's a loan that lets you borrow a lump sum of money and pay it back over a specific amount of time, with interest. 

For example, you might borrow $20,000 to consolidate credit card card debt and pay it back over three years. Or you might get a $50,000 personal loan to pay for a home makeover. 

A personal loan is usually unsecured, which means you don't need any collateral. Collateral is something of value that you own. 

Personal loan rates are fixed, which means your rate doesn't change over the life of the loan. Your credit scores influence the rate you pay. A higher credit score typically translates to a lower interest rate. 

Fixed rates mean your monthly payment won't change either, so it's easier to budget for repayment. Some lenders offer rate discounts when you add a co-signer. Achieve Personal Loans offers a co-applicant discount as well as rate discounts if you have sufficient money saved for retirement or if you allow us to pay off your creditors directly (if you’re using the loan to consolidate debt). These discounts could save on interest charges and help you pay off the balance faster. 

Differences between BNPL and personal loans

Buy now, pay later and personal loans both help you pay for things, but they aren't the same. Here's a quick look at what makes them different. 

Buy now, pay later 

• Available when you shop online or in-store

• Pay off purchases in installments, usually from four to 60 months

• Typically no interest charges for pay-in-four plans

• Longer-term payment plans could charge rates as high as 36%

• Some providers check your credit, but others don't

• Purchase limits vary by provider

Personal loans

• Borrow money to consolidate debt, cover emergencies, improve your home, or make larger purchases

• Pay back what you borrow typically over two to five years

• Interest charges apply

• Rates are impacted by credit scores

• A hard credit check is usually required

• Typical loan amounts are $5,000 to $50,000, though some lenders may offer higher limits

There's also a difference in how you access each one. 

With buy now, pay later, you can apply at checkout. You'll need to fill out an application with the provider, but if you're approved you could make your initial payment and complete the purchase. 

If you want to get a personal loan you'll apply with the lender. Once you're approved, the lender will send the loan funds to your bank account. After that, you can spend the money how you like.

You might have the option to pay your creditors directly if you get a personal loan to consolidate credit card debt. That's convenient, and it could help you snag an additional rate discount. 

BNPL vs. personal loan: Which is better?

Is buy now, pay later too good to be true? It's a legitimate way to pay when you shop, and in some cases is interest-free. 

There are some drawbacks to know. 

• Buy now, pay later loans aren't typically reported to credit bureaus, so they may not help you build credit. 

• Late fees may apply if you miss a payment due date. 

• BNPL providers could charge other fees that add to your overall cost. 

• It may be harder to track balances if you have multiple installment plans set up, which could lead to a BNPL debt spiral.

• Multiple payment plans could strain your budget. 

Now what about personal loans? 

Personal loans could help you build credit when you pay on time. If there's a drawback where credit is concerned, it's that a lower credit score could mean you pay a higher interest rate. 

You only have one payment to make, so it's easier to keep track of. Late fees are easy to avoid if you set up automatic payments or payment reminders. 

Lenders usually let you choose your repayment term, so you could pick one that fits your budget. 

Whether you use buy now, pay later, or a personal loan to meet your needs, think about how you'll manage them. 

• Review your personal budget to see what kind of payment you can afford before you borrow.

• Set up automatic payments or create due date reminders so you don't miss a payment. 

• Track your payments and balances so you don't lose sight of what you owe. 

• Consider an early payoff if your budget allows it and there's no penalty fee to do so. 

And here's one more tip if you think a personal loan is the right option. Get a rate quote online to estimate your monthly payments.