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How pay-over-time is different from credit cards

The retail concept of credit is fairly simple: You obtain goods or services with the agreement that you’ll pay later. Two forms that are popular with consumers today are credit cards and buy now, pay later (BNPL)—also known as pay-over-time. Understanding the difference between them can help your financial well-being.

Here’s a look at key details that make pay-over-time different from credit cards.

Obtaining credit is a process

Most forms of credit require approval from a lending agent, such as a credit card company or BNPL provider like Affirm. The process is lengthy in the case of credit cards: There’s usually a detailed application to fill out, after which you have to wait for an approval decision. Applying for a credit card can also affect your credit score.

The applications and approvals are simpler with BNPL options. You usually provide 4 quick pieces of info digitally during checkout, and then find out if you’re approved within seconds. The frictionless process occurs in the final stages of checkout, with no credit score impact.

Payment plans offer flexibility

As an approved customer, you have a wide range of flexibility in paying over time for the purchases you make with these two forms of credit. But this privilege assumes a degree of discipline on your part and can carry costly risks if payments are late.

The flexible timing for repayment with credit cards is a plus, as long as you can avoid the costly penalties—like compounding interest or late fees—for overdue payments. Most credit cards let you make a “minimum payment” instead of paying off the entire balance each month. But this option can trap you in snowballing debt as the unpaid remainder rolls over, with interest, to the next month’s billing cycle. It can be easy to lose track of how many purchases you’re making with the credit card.

With a pay-over-time option, you agree to a set payment schedule each time you use this payment method at checkout. The total amount can be paid in biweekly or monthly installments, and your payment plan may or may not require paying interest. You may also have flexibility on repayment amounts if you choose a monthly plan over a longer time frame.

Consumers love to pay over time, but they hate late fees: More than 3 in 5 respondents (64%) said there’s nothing worse than getting a late fee when paying a bill. With Affirm, you’ll never have late or hidden fees.

Why people love pay-over-time

The most common form of pay-over-time is a 4-part, interest-free plan, in which you agree to make payments every 2 weeks to pay for the total purchase. Shoppers like this interest-free option because it seems to make their spending dollars go further, as our research found. Here’s how a few survey participants described the appeal:

  • “I like that I have a little bit more breathing room than just taking $300 out of my checking account right now.”

  • “It’s something I can incorporate into my budget so it’s more manageable and not feel like it’s going to be a huge strain on my finances.”

Many shoppers also choose pay-over-time options to avoid using a credit card. A Motley Fool survey found that 37% of U.S. consumers use BNPL services because they don’t want to pay credit card interest. And nearly 1 in 5 (19%) said they don’t like to use credit cards.

The opportunity you should know about

If your business offers credit card or BNPL options, the operations are very similar. You pay a processing fee to the credit card or BNPL providers, and they service the customer payment plans. You get paid the full amount, minus the agreed-upon processing fee. 

But with many shoppers eager for an alternative to credit cards, you could really miss out if you don’t offer them a pay-over-time option like Affirm. Nearly 40% of U.S. shoppers under the age of 44 have used pay-over-time in the last year, making it one of the fastest-growing payment methods in e-commerce. 

Benefits for offering pay-over-time to your customers include up to 30% higher conversion rate and 50% bigger cart sizes. And businesses that partner with Affirm to offer pay-over-time see benefits like 85% growth in average order value, as well as a 20% repeat purchase rate.

The pay-over-time opportunity for you keeps growing: Today’s market is expected to double by 2024, representing more than $100 billion in sales. As more shoppers opt for pay-over-time, your business can get a piece of the action by partnering with Affirm to give customers this payment option.

If you’re still evaluating whether to offer pay-over-time options to your customers, consider these 5 questions that can help you decide which provider is right for your business.

Download our free ebook, Pay-over-time pays off, for more ways your business can benefit from offering pay-over-time options.

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