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The Risks of Buy Now Pay Later

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Buy now, pay later plans can be used on just about any purchase these days. They allow consumers to purchase just about anything - from big-ticket items like home appliances to smaller, routine purchases like clothing and cosmetics - and make payments, usually interest-free, in installments. While at first, this might sound great, if used haphazardly, these plans can present several risks.

In today’s blog, we’ll explore what buy now, pay later plans are and why discretion when using them is vital.

What is Buy Now, Pay Later?

Buy now, pay later (BNPL) has grown increasingly popular in recent years with payment plans like PayBright, Afterpay, and Sezzle dominating online retail, specifically among younger generations. Offered at the point of sale, BNPL plans allow customers to split the cost of an item or service into smaller installments, often interest-free, with the first installment typically due at checkout. However, deferring payments isn’t an entirely new concept; instead, BNPL offers a fresh spin on a timeworn concept previously seen in plans like layaways and rent-to-own. But, unlike the previous retail installment programs, BNPL is offered through a third-party company, rather than the retailer.

Equal payment vs deferred payment plan

In Canada, there are two types of BNPL plans: equal payment plans and deferred payment plans.

Equal payment plan

With an equal payment plan , the user agrees to make regular equal payments until their balance is paid off. For example, if a service costs $100, you would pay $25 a month for a total of four months. The upside to an equal payment plan is that each time a payment is due, you know exactly how much you owe. The potential downside of this type of BNPL plan is if the service or goods you purchased were expensive, in which case you may find that you can no longer afford to make the payments.

Deferred payment plan

A deferred payment plan , on the other hand, allows users to manage their own payment plan within a fixed period of time. How much and when you pay, as long as it’s within the time frame provided, is up to the loan holder. If used correctly, this type of payment plan can provide BNPL users with more flexibility. However, if payments are routinely missed, it will result in an increased cost for future payments.

How does Buy Now, Pay Later work?

While each plan offers its own set of terms and conditions, most BNPL loans include:

  • Opting for the BNPL option at checkout
  • A quick approval process
  • A down payment, usually 25 percent of the total
  • Scheduling three or more, usually interest-free, regular payments from your debit or credit card to cover the remaining costs

Risks of Buy Now, Pay Later

While BNPL services present a convenient way to pay for goods and services, they also demonstrate significant risks to consumers. 

Spending money you don’t have

One of the main financial risks of BNPL is that it may encourage users to spend significantly more than they normally would. Since many of the apps don’t check credit reports, there are few safeguards in place to prevent users from splurging on items they cannot afford to pay back, given their other debts. According to a study completed by the Financial Consumer Agency of Canada , 20 percent of those using a BNPL service indicated that they spent “a bit more” or “much more” using the service than they would have if they had not used it. Another recent study, completed by Financial Health Network, found that 34 percent of users wouldn’t have gone through with some purchases if BNPL services were unavailable.

You may feel you’re spending less

When transactions are broken down into smaller installments as BNPL services do, consumers may trick themselves into thinking they’re spending less. For example, you know that the winter coat you’re buying costs $200, but because you’re only required to pay $50 today, you may go on to rationalize the expense. This could tempt some users to take on multiple BNPL loans at once, which can be incredibly risky. Almost one in five of those juggling four or more of these loans missed a payment, which on average, is twice the rate of those with fewer BNPL loans, according to a Consumer Reports survey .

Hidden fees and a declining credit score

A recent study by Credit Karma found that 34 percent of consumers who used BNPL services fell behind on one or more payments. Of them, younger shoppers were most likely to overlook payments, with more than half of Gen Zers and millennials reporting they missed at least one payment. Depending on the terms of the BNPL provider, these late payments can result in fees or even put users on debt collection lists, which can cause serious harm to their credit scores. Pay-later services may also lead users to incur other surprise fees. For example, some providers charge convenience fees if users choose to use a debit card, credit card, or prepaid card instead of connecting their BNPL account to their bank. Awareness is key. Do your due diligence in finding out the true costs associated with these services.


If you are currently struggling with debt, don’t hesitate to contact our Licensed Insolvency Trustees. Crawford, Smith and Swallow have been providing the Niagara Region with debt consolidation help for over 75 years. Our professionals will work with you to find the best debt relief programs or solutions, catered to your specific needs.


Contact us or book a free consultation today for more information on how our team of Licensed Insolvency Trustees can help.

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