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Smart Spending: BNPL vs. Credit Cards

Smart Spending: BNPL vs. Credit Cards

Buy Now, Pay Later (BNPL) services like Affirm and Klarna offer an alternative to traditional credit cards by allowing consumers to split purchases into installments. While BNPL can be interest-free for short-term plans like "Pay in 4," longer-term options may incur interest similar to credit cards. The process is quicker and may not affect credit scores as BNPL activity is often not reported to credit bureaus. However, BNPL companies earn through transaction fees charged to retailers and interest from consumers. The ease of use can lead to "loan stacking" and impulsive purchases, potentially causing consumers to spend more than intended. The Consumer Financial Protection Bureau warns against these risks and highlights the importance of using BNPL wisely. For large, necessary purchases, BNPL can save money on interest, but it should be used cautiously to avoid falling into a cycle of debt.

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