Why consumers prefer BNPL to credit cards

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Key highlights:

  1. – Clear distinction between buy now, pay later and the traditional credit card option

  1. – Cost of living crisis driving consumers to tighten their budgets, meaning they’re more likely to take on BNPL and interest free credit with retailers who offer them

  1. – Consumers and retailers must be careful with BNPL, but DivideBuy’s interest free credit offering provides the perfect solution


As the cost of living crisis worsens, more people than ever are turning to credit as a way to better manage their payments.


Relatively unknown until a few years ago, the buy now, pay later (BNPL) space is  now worth £10bn to the UK alone. And for many consumers, particularly younger generations, it’s now preferred to credit cards. 


Most will be aware of both these credit options , but what’s the difference between the two? And is now an ideal time for your eCommerce site to adopt a POS financing option 


Interest free credit/BNPL vs credit card – what’s the difference?


What is a credit card?

A credit card is a form of loan where, rather than coming from the consumer’s bank account, the money spent is borrowed from the provider of the card. Those funds are then paid back over an extended period of time – often up to several years.  


Depending on the provider and the deal selected by the consumer, these may have a period of interest free borrowing. However they normally involve interest being incurred at some point during the card’s lifetime. Repayments begin almost as soon as any money is spent, with fees and a potentially damaged credit score incurred for late or missed repayments.


What is interest free credit?

Interest free credit and BNPL deals are very much as they sound. Rather than paying for the entire product all at once, regular payments are spread out over a predetermined period of time. The length can vary, but it’s generally shorter than its credit card alternative. 


BNPL and interest free products are aimed at making it easier for consumers to manage their money. Many of these deals, like DivideBuy’s finance solution, are interest free, however offers from other lenders can vary so be sure to read all of the small print before signing up.  


What’s the difference?

BNPL deals are separate credit agreements forged each time the consumer buys a product. Unlike credit cards – which involve a bank, building society or lender – they are agreements solely between lenders offering the deal or product and the customer. They’re also for relatively shorter periods of time (for example, two to twelve months with DivideBuy). 


Here are three reasons why consumers are choosing interest free credit/BNPL options over credit cards.


  • Cost of living crisis

Working out why your customers may choose a BNPL product over credit cards in the current climate certainly isn’t rocket science. 


People with credit cards, loans and traditional finance agreements are used to paying significant interest on their initial borrowing – so interest free credit is immediately a more attractive option.


This type of credit is available on a wide range of products and services, giving shoppers more choice on how they pay for orders which previously may not have been available on credit.


  • Soft credit checks 

A growing number of BNPL/interest free credit offers come with an option to check your eligibility without harming your credit file – before continuing with a hard credit check. 


DivideBuy’s Eligibility Checker lets customers run a soft credit check in seconds, so they can proceed with a hard check, confident that they’ll be approved for the amount they want to borrow. 


  1. Quicker lending decisions

With the DivideBuy checkout, customers simply need a valid debit or credit card. They also need to be aged between 18 and 75, a permanent resident of the UK and hold a valid mobile number. That’s it.


When a credit provider has a streamlined, rapid user journey like DivideBuy, retailers benefit from reduced checkout abandonment, increased average basket values and a higher conversion rate for your online store. This is a key difference from credit cards – where the application process can often take weeks or even months. 


Why should I offer interest free credit?


Many retailers see value in interest free deals because they can offer customers more flexible ways to pay – without having to wait for repayments to be made before getting revenue through the door. The credit risk is taken on by the lender, not the retailer, making this an attractive option for eCommerce brands. 


Partnering with an ethical Lendtech company like DivideBuy has had a huge impact on retailer conversions, reducing cart abandonment and driving more revenue. To find out more about the benefits, see our  retailer success stories.

DivideBuy is going the extra mile in responsible and ethical lending 


Our advice to consumers and retailer partners when choosing buy now, pay later solutions is the same: take care. Some lenders will charge interest on these deals, meaning the consumer ends up spending more than if they paid all at once. They may also charge an admin or processing fee. 


This isn’t the case with DivideBuy. There are no hidden costs to using our  interest free finance facility. If you buy something that costs £600, that’s exactly what you’ll pay. 


It’s important to note that the UK’s BNPL industry is currently unregulated – although the Government has proposed new industry rules that could become law in 2024. This will mean lenders must offer protection for borrowers to help them avoid financial difficulty as a result of the credit agreement. 


While we welcome that forthcoming regulation, at DivideBuy, we’re already delivering market-leading ethical lending practices that benefit our consumers and retailers. 


Our credit application decisions are based not only on the customer’s credit history, but also their circumstances and affordability information. We put the customer first to help them access flexible finance and manage their budget more effectively. 

How can I sign up?


Becoming a DivideBuy’s retail partner is a simple, seamless process.


To join thousands of UK retailers choosing us as their trusted Lendtech provider, book a demo with our team today.

Book a Demo

Please note, a minimum turnover of £2.5M and minimum trading period of 24 months is required to offer DivideBuy finance solutions.

Please note, a minimum turnover of £2.5M and minimum trading of 24 months is required to work with DivideBuy.


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