Buy now, pay later: this is how you’ll pay now … and later

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Image source: Getty Images.

It is every consumer’s dream. Buy something online and pay for it later.

That’s the sweet promise of new buy now, pay later (BNPL) apps. Of course, retailers have always offered “Buy Now, Pay Later” services in the past, but these were usually more expensive items, such as furniture or electronics. Nowadays you can buy toilet paper on Amazon and set up a payment plan.

Many Canadians switch from credit cards and cash to BNPL, as the services typically offer zero interest loans and no credit checks to use. But is BNPL really this affordable? Let’s take a look at the hidden costs of using BNPL.

Pay Now: Hidden Fees

First of all, each BNPL service works a little differently. But one thing unites them: they’re all pretty opaque about how they charge fees to consumers.

Some do not charge interest but charge a fee on late payments. Others will waive late payment fees, but they will charge you interest if you try to extend your payment plan. Some will charge a processing or rescheduling fee, while others will only give you a certain amount of time before you start paying interest.

In short, BNPL’s services are not always the “no-cost” payment option they claim to be. If in doubt, read your terms and conditions. In reality, alwayss read your terms and conditions before using a BNPL service, as hidden costs are often hidden in the fine print.

Limited insurance

Unlike credit cards, many BNPL services will not refund your purchase if your product is faulty or broken. Of course, you should be able to get a refund through the retailer, sometimes you can’t. And unless your purchase is covered by purchase protection insurance (like most credit cards offer), you’ll have to bear the cost.

Buy more than you can afford

Finally, BNPL’s services can easily trick us into spending more than we should, simply by making impulse buying easier. They take purchases we can’t afford and divide them into irresistible little numbers that make us believe they can fit our budgets.

Sometimes they can. Other times when an unforeseen expense arises, it can make us feel strapped for cash.

This is where BNPL’s services can get dangerously expensive. By choosing to delay payment, you are adding a fixed expense to your budget. The expenses may seem small, of course, but they leave you with less wiggle room. When an emergency arises, you will have less power in your budget to cover it. Or, if you switch from BNPL refunds to ED, you’ll end up paying late fees, which can get pretty steep.

Should you use buy now, pay later?

Honestly, it’s not worth it.

On the one hand, you run the risk of buying things that you don’t really need. And given that 60% of Canadians plan to take on more debt before the end of the year (of which about 20% use BNPL’s services to do so), many of us should probably start practicing deferred gratification.

Second, BNPL does nothing for your finances. Nothing. Most don’t even help your credit score, as not all BNPL apps report repayments to major credit bureaus.

Unlike cash back cards and rewards cards, which can help you at least earn something, many BNPLs do not have built-in rewards or insurance programs. I would choose one of the best rewards cards in Canada, especially one with a welcome bonus before I start borrowing money on BNPL services.


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