Can Fuel Up and Pay Later Help Curb Soaring Gas Prices?

This past weekend, gas prices reached over $5 per gallon, making fueling up even more expensive. Gas prices have skyrocketed across the country ever since Russia's invasion of Ukraine earlier this year. While gas credit cards can help you earn rewards to earn back some of the extra money you're spending on fuel, high credit card interest rates can be less than appealing. Fuel now, pay later options can also help ease the initial sticker shock by letting you pay less up front -- but it won't decrease your overall gas bill.

Fuel now, pay later refers to buy now, pay later, or BNPL, apps that let you purchase gas now and pay your balance back in installments. While gassing up now and paying down the line may sound attractive, there are risks to consider. For instance, even though these options may help you better afford to fuel up while waiting on your next paycheck, you could incur fees if you're unable 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?

Every BNPL app works differently, but all services split your bill into small micro loans that you'll repay in installments. Some BNPL apps split payments into four installment loans that you repay every two weeks. Others may break up installments across months or even years. Some require payment up front, while others don't. Some even charge interest and other fees.

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

Klarna

The Klarna app allows you to divide costs into four interest-free payments, paid every two weeks, with the first installment due up front. This means if you fuel up and your total comes to $80, you pay $20 right away and repay the remaining $60 balance in $20 installments over the next six weeks. 

Klarna does charge a $7 late fee if you miss an installment, capping late fees at 25% of the order amount. It requires a minimum purchase of $10 and avoids the classic pitfall of BNPL debt accumulation by preventing you from taking on a new Klarna loan if you miss a payment. When you sign up, Klarna will perform a soft credit check, which doesn't impact your credit score. Klarna also won't help boost your credit -- the BNPL service does not currently report data to 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 above that number, you can adjust the number to add more funds, and if it's below, unused funds will be automatically restored to your balance. Add the virtual card to your digital wallet and hold your phone to the pump or station reader to pay your first installment.

See at Klarna

Zip

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

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 a fail-safe against debt accumulation: 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 is paid. 

To use Zip, download the app and create your account. Then, using the In Store tab, select Chevron or Texaco. Enter your total purchase amount and request enough funds from your available balance to cover the cost plus taxes. Once you click Continue, your estimated installment amounts and payment due dates will be displayed. Review your installment payment plan and click Continue to create a Zip digital card. Add the virtual card to your digital wallet and hold your phone to the pump or station reader to complete your order.

See at Zip

Are fuel now, pay later apps risky?

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

The current lack of regulation of BNPL apps can make it easier to establish overspending habits, borrow carelessly and avoid repayment. In fact, a March 2022 survey from PYMNTS and PayPal found that 78% of participants polled would be inclined to use BNPL services to fund a large purchase they would otherwise not have the funds to buy. Since buy now, pay later services are easier to qualify for than credit cards, you could find yourself stretching your budget too far if you use them frequently.

And, whenever you use BNPL methods to pay for a service or consumable product, such as gas, you may be at a higher risk of missing payments. "It's easier psychologically to pay for a couch that you can see and touch versus a consumable like gas," said Martin. "Gas gets consumed in its entirety before you finish repaying without even a picture or memory of it remaining like with a vacation."

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

Right now, where you can use BNPL apps to pay for gas is limited. Chevron and Texaco stations are the only gas stations offering these services, so if it's not feasible for you to fuel up at those locations, they're not a great choice. However, if you are fueling up at Chevron or Texaco, here's how to decide which payment method might work better for you.

Credit cards may offer rewards every time you fuel up. Gas station branded credit cards offer an average discount of 5 to 10 cents a gallon. For example, the Chevron® and Texaco® Techron Advantage credit cards allow you to earn 3 cents a gallon on regular or diesel fuel. But credit cards also require a hard credit check -- which can impact your credit score -- in order to get approved

Here's the main difference: If you don't have enough money to pay back your full card balance by your monthly due date, your balance will begin accruing interest -- and the numbers are no joke. The average credit card APR is 16.34%, while the average APR for gas cards lies at a whopping 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 do not impact your credit score. Both, however, do charge late fees (and Zip charges a processing fee). Ultimately, if you're deciding between fueling up with a credit card or BNPL option, it's important to keep interest charges, late fees and your budget -- and when you can repay your balance -- in mind.

Given sky-high gas prices, should you take advantage of Klarna and Zip's partnership with Texaco and Chevron? Though buy now, pay later apps may make sense as a last resort for cash-strapped drivers as inflation rises, they could also lead to overspending and late fees. If you do 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 using these apps for gas only when necessary to avoid becoming dependent on them.