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"Buy Now, Pay Later" - What You Need to Know

Graham Christian

With holiday shopping now well underway, many Canadians are using credit cards to purchase some (if not all) of their gifts online. Once you’ve clicked your way over to the checkout page, however, you may have noticed a new option: “buy now, pay later” (or BNPL for short).

Offered by companies such as Paybright and Afterpay, BNPL has become increasingly popular among Gen-Z and millennial consumers who want more control over how they can pay for their purchases.

But what is BNPL, anyway? And is it worth using as a payment option? Let’s take a deeper look. In this article, we’ll cover:

 

  • What is “buy now, pay later”, and how does it work?
  • “Buy now, pay later” providers
  • Banks that offer “buy now, pay later” options
  • Benefits of “buy now, pay later”
  • Drawbacks of “buy now, pay later”
  • Is there a credit check involved?
  • Alternatives to “buy now, pay later” plans

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What is “buy now, pay later”, and how does it work?

 

The concept behind BNPL is pretty straightforward: say you’ve found the perfect winter coat online, but it’s a bit more than you wanted to spend. The idea of all that money leaving your account at once makes your chest tighten, but you know you’ll regret it if you don’t jump on it now. If the retailer offers a “buy now, pay later” plan, you’ll be able to make an initial payment to put the coat in your hands, then complete the transaction by making a series of scheduled payments over time until the item is paid off in full. In fact, according to a recent Government of Canada study, 42% of those who claimed to use a BNPL service did so because they felt it would help them budget better.

 

When it comes to the fine print behind these plans, however, every provider is different. Let’s take a look at four of the biggest names in the BNPL market.

 

"Buy now, pay later" providers in Canada

 

Sezzle

 

Partnered with over 34,000 retailers, Sezzle offers their customers an interest-free, four-part payment plan over six weeks, but you’ll have to pass a soft credit check first. The amount of your initial payment can vary, but it’s typically about 25% of the item’s total cost.  

Be ready to incur fees in the event of a failed/missed payment (or if you revise your payment dates twice or more on the same order). As an added bonus for those looking to build credit, their Sezzle Up option will give your payment history to credit bureaus. 

 

AfterPay

 

In a similar fashion, AfterPay also requires you to make the first of four payments at the point of purchase. After that, you’ll have six weeks to pay the rest of the installments with zero interest. Their app (which connects to your debit or credit card) makes your payment schedule viewable at any time, but you’ll also receive reminders from AfterPay as well.

In the event of a missed payment, you’ll be charged a late fee (never more than 25% of your purchase) and your account will be rendered inactive until the statement is paid.

 

Klarna

 

For those who’d rather not worry about remembering their payments, Klarna’s four-part installment plan offers more of a “set it and forget it” approach, automatically withdrawing the funds from your credit/debit card every two weeks. The only downside? They’re not quite as flexible as some of their competitors, as you can’t change the timing of your payments once you lock into a plan.

That being said, Klarna doesn’t charge any interest or late fees for missed/late payments, but you may be banned from using their service in future.

 

PayBright

 

Having the distinction of being Canada’s first BNPL provider, PayBright offers two ways to purchase: “Pay in 4” and “Pay Monthly.”

Their Pay in 4 option involves no credit check and, providing you make your bi-weekly payments on time, you’ll also avoid interest. Alternately, their Pay Monthly plan operates more like a traditional loan and does involve a credit check/interest (the latter of which can be as high as 29.95%), so best to think it through before going down that path.

While there are no late fees for missed payments, PayBright will ban you from making any future purchases using their service.

 

Banks that offer "buy now, pay later" options in Canada

 

Interested in the idea of BNPL but uncomfortable using a third-party service? Many trusted financial institutions now feature plans of their own. Here’s five we’ll explore in further detail:

 

American Express Plan IT™

 

American Express offers its Plan IT™ program for those who would rather pay off their credit card balance gradually over a set number of months. Using this option, you would choose a qualifying amount of your eligible balance and select one of their four plan options (3, 6, 9, or 12 months). One of Plan-It™’s best features is its transparency: once you’ve selected an amount to pay off, you can view upfront how much you’ll be paying per month under each plan option. Once you’ve selected the plan that works for you, you can review your total amount owed under the plan and confirm.

While there is an installment fee, it varies depending on the card you have and its accompanying interest rate. American Express Plan IT™ is also not available to residents of Quebec, Nova Scotia, PEI, and Nunavut. 

 

Brim Financial Flexible Payments

 

Brim Financial’s Flexible Payments option gives their customers the ability to pay off purchases of $500 or more using their app or website. All you need to do is select an eligible transaction, choose the duration you’d like (they offer a range of 12 to 24 months in 4 month increments), and you’re on your way. 

In lieu of interest, Brim charges a one-time installment fee (7% of the total) which is payable in the first month. And, if your total is $1000 or more, a monthly processing fee of $4.75 is also applied.

 

CIBC Pace It

 

For CIBC customers, their Pace It program gives you the ability to pay installments on purchases over $100. Their plan options are 6, 12, and 24 months, and each carries a much lower interest rate than the bank would normally charge on one of their credit cards (5.99%, 6.99%, and 7.99%, respectively). A one-time installment fee (1.50% of purchase amount) is also applied.

Qualifying cardholders can use the CIBC app to select an eligible purchase for Pace It, leaving the rest of their available balance unaffected. You can also create multiple installment plans for different purchases, giving you the flexibility to pay off more than one purchase at the same time.

 

MBNA Payment Plans

 

MBNA offers Payment Plans, giving their customers the option to pay for purchases of $100 or more in monthly increments over periods of 6, 12, or 18 months with a one-time fee corresponding to whichever plan you choose (4%, 6%, and 8%, respectively). Customers can log in to MBNA’s online banking to view and set up Payment Plans by following their step-by-step instructions.

Payment Plans also offer a high amount of flexibility, allowing you to have up to 25 active installment plans at one time. And while you can’t adjust your plan once locked in, you always have the ability to cancel.

 

Scotia SelectPay

 

Scotia SelectPay from Scotiabank allows you to pay off purchases of $100 or more using a 3, 6, or 12 month plan with no interest. However, they do charge a monthly fee specific to each plan (2%, 4%, and 8% of the total, respectively). 

Users can access the SelectPay feature on the Scotiabank app to choose an eligible purchase and a plan. You have the option to cancel at any time with no fee, and there is no limit to how many installment plans you can keep active at the same time, providing you with a ton of flexibility. 

Find your perfect credit card in under 60 seconds - No SIN required

  1. Tell us a bit about yourself

    Answer some questions so we can personalize our recommendations - this won't impact your credit score

  2. Check your eligibility

    We confirm your eligibility with our partner, TransUnion. This will be a ‘soft credit check’ which you can see but lenders cannot

  3. Find your perfect matches

    We show you the cards you’re most likely to want and most likely to get

let's get started

Benefits of "buy now, pay later"

 

Makes large purchases more accessible

 

This is a rather obvious one, but BNPL plans do a lot to level the playing field for those who need to make an expensive purchase but can’t afford to pay for all of it at once. If you’re living on a fixed income, necessary things will still need to be replaced and upgraded as time passes, and not having to sacrifice other essentials to make an emergency purchase will reduce stress and make life a lot more manageable. 

 

Interest-free payments

 

While using a credit card for bigger purchases is always an option, it does contain the lingering threat of added interest if you’re unable to pay it off in full within the month. Many BNPL plans avoid interest entirely in favour of a one-time fee, not only giving you more time to pay off your purchase, but guaranteeing that your principal owed won’t bloat in the meantime. 

 

Helps build credit

 

Financial institutions who offer BNPL plans still report their customers’ payment history to credit bureaus (and even some third-party providers, such as Sezzle, offer an option for this), so paying off your purchases in a timely fashion will likely help your credit score improve. Having a healthy credit score can open opportunities for borrowing money down the road, so it’s important to do what you can to keep that number high.

 

Drawbacks of "buy now, pay later"

 

Encourages reckless buying

 

The underside to BNPL making big-ticket items more affordable, of course, is the danger of giving in too much to temptation. Previous to consumers having this option, the price tag of expensive items was itself a kind of safeguard against buying something we couldn’t afford. With the advent of staggered payment, however, it’s much more difficult to talk yourself out of buying that super-pricey fantasy purchase. While there’s nothing wrong with making items like this more affordable, buying too many of them on installment plans may leave you trying to juggle multiple bills and falling behind in the process.

 

Interest and fees

 

While some BNPL providers charge little to no interest, that can’t be said for everyone. Interest rates for BNPL plans can go as high as 30% in some cases, which is scary to think about if you may not be able to keep up with your payments.

Similarly, certain BNPL providers charge a fee for late or missed payments. The amount depends on how much you’ve chosen to put on your installment plan, but the higher your total, the more substantial your late fee will be as a result. 

In either case, it’s worth reading through the details of your agreement when signing up for a BNPL plan and making the decision for yourself as to whether you can handle the risks involved.

 

Do "buy now, pay later" providers run credit checks?

 

The answer to this question depends on the individual provider, but generally most third-party providers don’t run credit checks or report to credit bureaus unless specifically stated in the terms of the plan. While banks such as Scotiabank still certainly conduct credit checks for new customers, existing clients who want to make use of their installment option shouldn’t worry about taking a hit to their credit score. If you want to make absolutely sure, however, contact your provider and ask them how their BNPL plan could affect your credit.

 

Alternatives to "buy now, pay later" plans

 

While BNPL plans are currently very popular, they’re not for everyone. For those looking for other ways to tackle a big purchase, here are some more traditional options that could work just as well.

 

Low interest credit cards

 

If you’re looking to pay off an expensive item over time rather than all at once, using a low interest credit card could be a great idea. While they typically don’t come with a lot of perks, low interest cards are usually easy to get approved for and will allow you to complete your purchase in a reasonable amount of time without collecting too much interest on top of the principal. 

 

Personal loans

 

Getting a personal loan is another way to handle a large expense. With this method, you’ll borrow however much you need and pay it back to your lender over time using a pre-set schedule of payments. Online resources such as Loans Canada or Loanconnect can be helpful in finding you the best rates. While your interest rate on a personal loan will largely be influenced by your provider as well as your personal credit score, it can typically run between 15% and 45%.

 

Lines of credit

 

You may also want to think about taking out a line of credit with your bank. With this option, you’ll be able to borrow money up to a pre-set amount, but can use as little or as much of it as you’d like. You’ll be allowed to pay back what you owe at any time and only pay interest on what you’ve borrowed. The amount of interest you’ll pay depends on your credit score at the time you took out the line of credit as well as general market fluctuations.

The bottom line

 

"Buy now, pay later" plans are popular in Canada for a reason. Not everyone has the financial flexibility to comfortably pay for big purchases all at once, so having the ability to space out your payments over time (often without collecting interest) is alluring to many consumers. But, as with anything, there are benefits as well as drawbacks, so make sure you get all your questions answered before signing up. Use the information above to get you started, and let us know in the comments how you feel about “buy now, pay later”.

 

ALSO READ:

 

How to Budget for Your Next Big Purchase

8 Shopping Tips to Save Money This Holiday Season
How to Pay Off Your Credit Card: 8 Ways to Reduce Interest Charges

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