Buy now, pay later vs credit card EMI: Cheaper vs expensive analysis - Expert explains interest, fees, hidden charges

Buying a new smartphone, laptop or household appliance has become easier with payment options such as Buy Now, Pay Later (BNPL) and credit card EMIs. Both allow consumers to spread the cost of a purchase over time instead of paying the entire amount upfront. However, the convenience of smaller instalments does not necessarily mean the purchase will cost less.

While BNPL platforms often advertise zero-interest payments, credit card issuers offer no-cost EMIs, cashback and flexible repayment tenures. The actual cost depends on the interest rate, processing fees, taxes and repayment period. Choosing the wrong option could mean paying more than the original purchase price.

So, which payment option is cheaper, and how can missed instalments affect your credit score?

The difference between BNPL and credit card EMI largely depends on the purchase amount and how quickly the consumer intends to repay it.

According to Adhil Shetty, CEO of BankBazaar, BNPL can be a cheaper option for smaller purchases, such as clothes, gifts and accessories, particularly when the outstanding amount is repaid within a few weeks.

"For small buys like clothes or gifts paid back within a few weeks, BNPL can work out cheaper because the interest-free period may mean little or no extra charge," Shetty said.

However, credit card EMIs may be more suitable for expensive purchases, including smartphones, televisions, laptops and household appliances, especially when banks offer promotional discounts or no-cost EMI schemes.

Shetty explained that credit card EMIs generally carry interest rates of approximately 13% to 18% annually, along with processing fees and GST.

For instance, a consumer purchasing a ₹60,000 smartphone through a credit card EMI at 15% annual interest over 12 months would pay approximately ₹5,415 per month.

The total repayment would be around ₹64,986, including approximately ₹4,986 in interest, before processing fees and applicable taxes. However, the actual amount will depend on the bank's interest calculation, processing charges and promotional offers.

One of the biggest attractions of BNPL is the promise of interest-free repayment. However, consumers need to examine the conditions attached to such offers.

According to Shetty, zero-interest BNPL schemes generally require lender approval, completion of know-your-customer (KYC) verification and purchases from participating merchants.

Such offers may also have restrictions on the maximum purchase amount and repayment tenure.

Even when no interest is charged, borrowers may still have to pay processing fees, applicable GST and penalties for missing repayment deadlines.

A similar consideration applies to no-cost credit card EMIs.

"In a no-cost EMI, the interest is often covered by giving up a discount that would have applied on paying upfront, so the saving may be smaller than it looks," Shetty explained.

For example, a retailer may offer a ₹2,000 discount on an appliance purchased through an upfront payment, but the same discount may not be available when the buyer chooses a no-cost EMI.

Consequently, consumers should compare the final amount payable under both options rather than relying only on the advertised interest rate.

Shetty added that regulated digital loans come with a Key Fact Statement (KFS), which discloses the annual percentage rate and applicable charges. This document can help borrowers understand the borrowing cost before accepting an offer.

Another important consideration is the effect of these payment options on a consumer's credit history.

Many borrowers assume that BNPL transactions do not affect their credit scores because they involve relatively small purchases or short repayment periods. However, Shetty explained that loans provided by regulated lenders, including short-term and pay-later facilities, are reported to credit bureaus.

Consequently, missed BNPL instalments can affect a borrower's credit score, just as delayed credit card EMI payments can.

"A missed payment can show up on a credit record, whether the purchase was made through BNPL or a card EMI," Shetty said.

Apart from affecting creditworthiness, delayed payments may attract late fees and other penalties, depending on the lender's terms. Timely repayments can contribute to a healthy credit history, although they do not automatically guarantee an improvement in the borrower's credit score.

The risk becomes particularly relevant when consumers use multiple BNPL services or convert several purchases into EMIs, creating overlapping repayment obligations.

According to Shetty, BNPL generally works better for smaller purchases that can be repaid over a short period without straining the monthly budget. It may also provide an alternative for consumers who do not have credit cards, subject to lender eligibility requirements.

Credit card EMIs, meanwhile, may be more suitable for expensive purchases where consumers need longer repayment periods and can benefit from reasonable interest rates, cashback or promotional offers.

However, neither option is automatically cheaper.

A zero-interest BNPL offer may become expensive if it carries substantial processing charges or late-payment penalties. Similarly, a credit card EMI may cost more when interest, processing fees and GST are included.

The key comparison is the total amount payable, including all charges, rather than the size of the monthly instalment.

Kirti jha

Kirti Jha is a Senior Content Producer at Mint, where she writes on mutual funds, taxation, personal finance and macroeconomic developments. Her reporting focuses on helping readers understand complex financial developments through data-driven, research-backed stories that explain how policy changes, market trends and regulatory decisions affect investors and households. <br><br> Before joining Mint, Kirti worked at ET Money, where she specialised in mutual fund research and investment analysis. She tracked portfolio disclosures, fund manager strategies, sectoral allocation shifts and investment trends, distilling large datasets into investor-focused insights. Her work combined quantitative analysis with consumer-centric storytelling, enabling readers to better understand fund positioning, portfolio changes and long-term investment opportunities.<br><br> Kirti holds a Bachelor's degree in Economics from Indraprastha College for Women, University of Delhi, and a Master's in Finance from the Jindal School of Banking & Finance at O.P. Jindal Global University. Her academic training emphasised analytical thinking, quantitative research and financial decision-making, providing a strong foundation in understanding capital markets, financial systems and economic policy. With a combined experience in investment research and financial journalism, she is committed to producing accurate, accessible and insightful journalism that empowers readers to make well-informed financial decisions.

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