Buy Now, Pay Later – Is it right for you?

November 18, 2021

Have you started your online holiday shopping yet?

If so, you may have noticed a relatively new option at checkout: make a purchase and split the payments up over a few months instead of paying the whole cost up front with a Buy Now, Pay Later (BNPL) feature. You might think this is too good to be true – that’s where we come in.

With the holiday season coming up fast, it’s important to prepare yourself with the best payment options available to you and leave yourself feeling more financially resilient once the season is over. That’s why we’re sharing some information on what Buy Now, Pay Later is, including pros, cons, and what you might ask yourself before diving into this financing opportunity.

 

What is Buy Now, Pay Later (BNPL)?

BNPL can be found at the checkout of a lot of common online retail outlets like Amazon, Shein, Pandora, among thousands of others. They may have different names such as AfterPay, PayBright, Sezzle, Affirm etc. and these providers allow you to finance your purchase right at checkout in the click of a button.

There are two different ways to finance your purchases through BNPL:

  1. Equal Payment Plan – This option splits your purchase into equal installments. You are expected to pay the first payment up front at checkout, and most commonly the other installments are due monthly or biweekly thereafter.
  2. Deferred Payment Plan – This option is frequent with large purchases, offering the ability to put all payments on hold until a selected date in the future. On occasion you will only be expected to pay the interest during that time.

With either option, you are financing your purchase with credit, which may or may not always involve a credit check.  

BNPL was originally created by fintech companies and recently there is a large uptick in credit card issuers, payment firms, and traditional banks partnering with these BNPL providers and fintech companies to offer this new, popular service.  

Now more than ever Canadians are working to lower credit card debt and avoid extra fees, leading to the popularity of convenient alternatives like BNPL. According to The Financial Post, we’ve seen an all-time high in credit card debt in Canada in 2020, and in 2021 this has only worsened with Canadians relying on credit for everyday needs and living expenses. There has also been a significant increase of consumers checking their credit scores, with 64% saying they have  checked their reports in the last year. 

 

What are the Pros of BNPL?

  • The convenience of installments or deferred payments can be a no-brainer, especially coupled with the ease of the click of a button at the online checkout.  
  • Interest rates for BNPL programs are often very low; as low as 0% in many cases, in comparison to the common 22% on credit cards. However, be sure to read all fine print and know what you’re agreeing to – interest rates can change at any time!  
  • As a whole, most BNPL platforms offer a safe and secure way to make a payment without swiping your card, entering your pin, or utilizing banking information. 

 

What are the Cons of BNPL? 

  • Postponing a payment using credit can lead to taking on more debt than you can afford, whereas a Libro Coach can help you determine how much debt you can pay off. So, it can encourage spending beyond your means or making impulsive purchases, and while payments may seem small at first, multiple payments over time adds up quickly!  
  • A lot of BNPL providers are creating their own apps and websites, letting consumers shop by category of retailers that offer payment plans. This enables shoppers to search for stores and items with the intent of exclusively using credit, resulting in a lack of financial consideration. 
  • Depending upon the requirement of a credit check, the credit provided may not report to the Credit Bureau, resulting in a lost opportunity to increase and maintain your credit score. 
  • Though there is the lure of interest-free payments, if a payment is missed you will be subject to varying fees that could include interest, late fees, or suspended accounts. Each BNPL platform has its own associated fees, so it is best to read the fine print before committing. Read more about potential hidden costs here. 

 

What Questions Should I Ask Myself Before Using BNPL?

  • Will you be able to make every payment on time? Do these payments fit in with my budget?  
  • What is the interest rate? Is this higher or lower than the other forms of credit I have available to me? Would another form of credit be better suited?  
  • Can I afford the applicable fees if I miss a payment?  
  • Is my credit score able to withstand a check? 

 

Unsure about your answer to any of these questions? A Libro Coach would love to go over your options and help to figure out what the best one is for you. Contact a Coach today.  

Now that you’re a bit more knowledgeable about BNPL, you’re ready to make the choice that’s best for you when you’re pressing “confirm” on that next online order.  

By Rebecca Smith

Rebecca is a Home Financing Advisor for Libro’s London Elgin Oxford Region. She loves working with Owners to make home ownership a reality! When she is not working, she enjoys spending time with her husband and 3 young children, watercolour painting, and walking local trails with her husky.