Can fueling up and paying later help curb soaring gas prices?

Last weekend, gasoline prices exceeded $5 per gallon, which makes refueling even more expensive. Gasoline prices have skyrocketed across the country since The Russian invasion of Ukraine earlier this year. Whereas gas credit cards can help you earn rewards to recoup some of the extra money you spend on fuel, high credit card interest rates can be less appealing. The Fuel Now, Pay Later options can also help soften the initial sticker shock by letting you pay less up front, but it won’t reduce your overall gas bill.

Fuel Now, Pay Later refers to buy now, pay later, or BNPL, apps that let you buy gas now and pay off your balance in installments. While filling up now and paying off the line might sound appealing, there are risks to consider. For example, while these options may help you better afford to fuel up while waiting for your next paycheck, you could incur charges if you fail to pay on time.

Here’s what you need to know about fuel now, pay later apps to decide if they’re right for you.

What are buy now, pay later apps for gas?

Each BNPL app works differently, but all services divide your bill into small micro-loans that you will repay in instalments. Some BNPL apps split the payments into four installment loans that you repay every two weeks. Others may spread payments over several months or even years. Some require an upfront payment, some don’t. Some even charge interest and other fees.

Currently, there are two BNPL options available to pay for gasoline: Klarna and Zip, both of which have partnerships with Texaco and Chevron gas stations.

Klarna

The Klarna app lets you split the costs into four interest-free payments, paid every two weeks, with the first installment due up front. This means that if you fill up and your total is $80, you pay $20 immediately and pay off the remaining $60 in installments of $20 over the next six weeks.

Klarna charges a $7 late fee if you miss a payment, capping the late fee at 25% of the order amount. It requires a minimum purchase of $10 and avoids the classic pitfall of building up BNPL debt by preventing you from taking out a new Klarna loan if you miss a payment. When you register, Klarna will perform a soft credit check, which will not affect your credit score. Klarna will also not help increase your credit – the BNPL service does not currently report data to the credit bureaus.

To use Klarna, first download the app and create your account. Then, using the “Pay in Store” search, select Chevron or Texaco. Follow the instructions to create a digital card: Texaco and Chevron will prompt you to add a minimum amount to the virtual card. If your total fuel cost is higher than this number, you can adjust the number to add more funds, and if it is lower, unused funds will automatically be restored to your balance. Add the virtual card to your digital wallet and hold your phone in front of the pump or station reader to pay your first installment.

zipper

Zip (formerly QuadPay) is a BNPL app that also splits your bill into four interest-free payments, over six weeks, with the first installment paid up front. Unlike Klarna, Zip charges a transaction fee of $4 per purchase ($1 per payment) and requires a minimum purchase of $35. Zip will also charge a late fee of $5, $7, or $10, depending on your state, for a late payment.

Like Klarna, Zip only runs a soft credit check when you sign up and does not report account and transaction behavior to credit bureaus. Zip also includes built-in security against building up debt: if you stop making payments on a current Zip installment plan, you won’t be able to use the platform for a new loan until your balance has been paid off. .

To use Zip, download the app and create your account. Then, using the In-Store tab, select Chevron or Texaco. Enter the total amount of your purchase and request enough funds from your available balance to cover the cost plus tax. Once you click continue, the estimated payout amounts and payment due dates will be displayed. Verify your Installment Plan and click Continue to create a Digital Zip Card. Add the virtual card to your digital wallet and hold your phone in front of the pump or station reader to complete your order.

Are fuel now, pay later apps risky?

While using a BNPL option at the pump may seem attractive, customers should be wary of their lack of regulation and credit reporting, said Yaacov Martin, CEO of Jifiti, a multi-lender platform that connects retailers to buy now, pay later.

The current lack of regulation of BNPL applications can facilitate the establishment of overspending habits, careless borrowing, and repayment avoidance. In fact, a March 2022 survey from PYMNTS and PayPal found that 78% of participants surveyed would be inclined to use BNPL’s services to finance a major purchase that they otherwise would not have the funds to purchase. Since it’s easier to qualify for buy-it-now, pay-later services than credit cards, you might find yourself stretching your budget too far if you use them frequently.

And, each time you use BNPL methods to pay for a service or consumable, like gas, you run a higher risk of missing payments. “It’s psychologically easier to pay for a sofa you can see and touch versus a consumable like gasoline,” Martin said. “Gas is consumed in full before you’ve finished repaying without even a picture or memory of it remaining like on vacation.”

Is it better to use a credit card or the BNPL service at the pump?

Currently, there are limited places where you can use BNPL apps to pay for gas. Chevron and Texaco stations are the only gas stations that offer these services, so if it’s not possible for you to fill up at those locations, it’s not a good choice. However, if you are fuel up at Chevron or Texaco, here’s how to choose the payment method that’s right for you.

Credit cards can offer rewards every time you fill up. Gas station credit cards offer an average cashback of 5 to 10 cents per gallon. For example, the Advantage Chevron® and Texaco® Techron credit cards let you earn 3 cents per gallon of regular or diesel fuel. But credit cards also require a rigorous credit check, which can impact your credit score, in order to be approved.

Here’s the main difference: if you don’t have enough money to pay off your card balance in full by the monthly due date, your balance will start earning interest – and the numbers are no joke. The average credit card APR is 16.34%, while the average gas card APR sits at 25.8% – and the Techron card has an APR of 29.99%. (PDF)

In contrast, Zip and Klarna are both interest-free, have a slightly longer repayment period of six weeks, and currently have no impact on your credit score. However, both charge late fees (and Zip charges processing fees). Ultimately, if you’re deciding between filling up with a credit card or the BNPL option, it’s important to keep in mind interest charges, late fees, and your budget — and when. you can pay off your balance.

Given sky-high gas prices, should you take advantage of Klarna and Zip’s partnership with Texaco and Chevron? While buy now, pay later apps can make sense as a last resort for cash-strapped drivers as inflation rises, they can also lead to overspending and late fees. If you opt for BNPL at the pump, practice healthy borrowing habits, like making sure you can repay the balance in full and on time. We recommend that you use these apps for gas only when necessary to avoid becoming dependent on them.

Editorial content on this page is based solely on objective, independent assessments by our editors and is not influenced by advertising or partnerships. It was not supplied or commissioned by a third party. However, we may receive compensation when you click on links to products or services offered by our partners.