This Black Friday, what’s the best way to pay?

‘Buy now, pay later’ apps and store credit cards have deals to offer this holiday season. Here’s how to plan.

Two payment options are vying hard for shoppers’ attention this Black Friday: "buy now, pay later" services and store credit cards.

There’s a reason for the avalanche of offers. Startups and established players in payments want a bigger piece of the e-commerce boom set off by the pandemic, and some are offering competitive Black Friday deals to woo consumers to their platform.

Affirm, Klarna and other ‘buy now, pay later’ apps allow shoppers to pay for purchases in weekly or monthly installments, with fees but often without interest. Their popularity has skyrocketed over the past year.


A Black Friday shopper wearing a face mask shops at the Glendale Galleria in Glendale, Calif., Friday, Nov. 27, 2020. (AP Photo/Ringo H.W. Chiu) (AP Newsroom)

Store credit cards, which typically work with one retailer or joint retailers and offer store-specific rewards, are also rising in use compared with early pandemic levels.

According to a survey of more than 2,000 adults published in October by the loan marketplace LendingTree, 21% of respondents said they planned to use a buy now, pay later app to pay for goods this holiday season, while 29% said they were more likely to use store credit cards.

Last year, 44% of respondents had planned to use store credit cards, indicating a significant drop in interest. Historical data for buy now, pay later services wasn’t available, as it was first added to the survey this year.

"The fact that that number is that close, this early in the history of buy now, pay later loans is pretty eye-opening," said Matt Schulz, chief credit analyst at LendingTree.

Both payment options have their perks and drawbacks, depending on the shopper. If you’re loading up a shopping cart this week, here’s how to decide which types of payments make financial sense:

Is it worth the setup?

Picture it: You have only a few hours to get your shopping done on Friday, and the store cashier informs you of a sizable discount on your order if you apply for a store credit card. Will you exit the checkout line to fill out the paperwork, or skip the discount?

"If it comes down to a store credit card and a buy now, pay later option, one of the main factors in that decision is going to be how easy it is to get set up," said Sheridan Trent, a research analyst at the Strawhecker Group, which focuses on the electronic-payments industry.

For most buy now, pay later services, all that is required to get started is signing up on the site or app. Ms. Trent noted that some now have in-store options. Klarna, for example, allows users to create a virtual card that can be added to their phone’s digital wallet and used at bricks-and-mortar retailers.

Another consideration, Ms. Trent noted, is whether or not you mind the credit check most store cards require. Most buy now, pay later payment plans use a combination of algorithms and a soft pull—in which your credit accounts are reviewed without affecting your score—to check your eligibility, she said.

"If you’re worried about your credit score this year, which I think some people are, that can be kind of a deterrent going into the holiday season," said Ms. Trent.

Is that deal really a deal?

Both store cards and buy now, pay later services can offer sizable discounts. Klarna is partnering with Bed, Bath and Beyond on a Black Friday deal that will waive Klarna users’ final payment, or a maximum 25% of the purchase, when they use the service in stores or online. Affirm said it is offering 0% APR over six months for some customers at partnered stores—including Nike, Home Depot and Nordstrom—via its app over Thanksgiving weekend.

Consider whether the discount is worth the long-term effects on your budget, says Priya Malani, founder and chief executive of Stash Wealth, a financial-advisory firm geared toward millennials. A barrage of marketing and special offers could end up costing you more than the discount.

If you are a brand-loyal customer and store discounts are plentiful, a store card might be the right fit, said Mr. Schulz at LendingTree.

"They’ll often have targeted rewards that you probably wouldn’t be able to get anywhere else," he said, such as 5% cash back on Amazon and Whole Foods products, or 10% off every purchase at the Gap. "So if you’re a loyal shopper and you pay your balance in full every month or close to that, then store cards are a good idea."

How do the fees and interest rates compare?

Your ability to pay off a store-card balance is important for a very specific reason: Retail cards have notoriously high annual interest, reaching nearly 30%. Letting that interest accrue could erode the benefit of opening the card in the first place, Mr. Schulz said.


"If you do carry a balance, store cards are really problematic because the interest rates are sky high," he said.

Mr. Schulz suggested consumers look to buy now, pay later options if they will need more time to pay off a balance, because payment plans are generally more cost-friendly and have longer repayment windows.

Affirm allows users to spread payment time for purchases over six weeks to as much as 60 months—depending on the merchant, product and underwriting process—with interest rates ranging from 0% and up to 30% over the life of the loan for large purchases. However, there are no late fees.

Afterpay and Klarna carry no interest but can add late fees if users miss payments. Penalties are capped at around 25% of the purchase or past-due amount, respectively.

Depending on the company and terms, credit-card companies can charge up to $40 for late payments, according to the Consumer Financial Protection Bureau.

What about a traditional credit card?

You are likely to be flooded with offers for both types of payment options this holiday season. Remember that you aren’t limited to either. You can use cash or a credit card in your wallet—or open a different one with rewards more tailored to your needs.

Traditional credit card sign-up bonuses are at high levels as banks try to get consumers to borrow again after the pandemic, noted Grant Sabatier, founder of and author of "Financial Freedom." "It’s just record bonuses being offered," he said.

As with any credit card, check the fine print of your APR terms—even if the APR is 0% for the first year, fees could be added onto the next—and try to pay off the balance monthly. While holiday shopping, remember to watch your credit-utilization ratio, or the amount of credit you’re using divided by the total amount of credit available to you.

"I know it’s the holidays and I know it’s emotional and I know the deals are juicy," said Ms. Malani of Stash Wealth. "But if you’re buying things for people you love, do they want you to go into debt for them?"