Buy now, pay later

Buy now, pay later (BNPL) is a short term financing option to purchase goods or services. It is a type of unsecured consumer credit.Corportate Finance Institute, BNPL (Buy Now, Pay Later), Updated January 18, 2023, viewed March 6, 2023.
The original form of BNPL is the deferred payment plan, typically used for more expensive purchases like furniture or home appliances.Financial Consumer Agency of Canada, Pilot Study: Buy Now, Pay Later Services in Canada, modified November 18, 2021, viewed March 6, 2023. Recent technological innovations in the BNPL space have allowed it to apply to online purchases, including for small items.CPA Canada, Be cautious when using Buy-Now-Pay-Later for online purchases, October 29, 2021, viewed March 6, 2023. BNPL may also be offered in store, even to buy clothing or groceries. According to Equifax, a credit bureau, "the majority of industries have adapted to some type of Buy Now, Pay Later".Equifax, What to know about Buy Now, Pay Later, December 16, 2021, viewed March 7, 2023.
This article describes the different types of BNPL loans, the main issues associated with those arrangements, and alternatives to using them.
==Traditional deferred payment plans==
The traditional deferred payment plan is offered in store, to finance large purchases, perhaps over several years. According to the Financial Consumer Agency of Canada (FCAC), "consumers (are) generally subject to lengthier in-store application processes".
According to consumer advocates, these programs are marketing schemes at best. If you think that the company is allowing you to delay your payments free of charge, think again. There may often be fees to defer the payment.Buy Now...Pay Later, from Debt Canada: Your Canadian Credit Education Centre, viewed March 29, 2015
Additionally, the company is counting on you to miss a payment. When that happens, you could be paying an annual interest rate of 28% to 30% and will accrue from the day of purchase - not from the missed payment date.G. Binks, Deferred interest, payment plans tricky to maneuver, October 3, 2014, viewed March 30, 2015
==Recent trends==
In recent years, BNPL plans have become much easier and quick to access, due to technological innovations. BNLP plans are presented as a form of "payment" for online (e-commerce) or in-store transactions, although they are actually point-of-purchase loans. Applying can be as easy as supplying "basic information including name, address, phone number, and birthday". Credit approval is quick, sometimes within "seconds". BNPL plans are no longer limited to large purchases: you could potentially put your weekly groceries or your new pair of jeans on a BNPL plan.
With smaller purchases, consumers can spread their purchases over 4 payments, for example. The interest rate may be as low as zero percent. However, penalties for missed payments include interest, late fees and suspended accounts.
There are several flavours for modern BNPL plans. The method of payment may include credit cards, and pre-authorized debits on your bank account.Financial Consumer Agency of Canada, Buy now, pay later plans, modified December 15, 2022, viewed March 6, 2023. Terms may include equal payments (instalments) or a payment at a later date.
==Issues with BNPL plans==
Equifax reports that "on average with BNPL, merchants see more sales with higher conversion rates and increase in average order value". One BNPL fintech estimates that "consumers spend 45 per cent more when they use buy now, pay later. And about the same percentage of people will make a purchase using BNPL that they otherwise would have delayed".CBC News, Young consumers are opting to buy now and pay later, as more companies enter the financing game, June 8, 2022, viewed March 7, 2023. This sounds great for merchants, but not so much for consumers.
The basic issue of BNPL plans is that they allow you to make purchases you may not really be able to afford, including impulsive purchases not planned in your budget. Over time, this can lead to spending more than you earn, an increased debt load, and lower (or negative) net worth. The FCAC writes that "psychological and behavioural biases ... may make BNPL products and services attractive to consumers". I.e. the pain of paying comes later and is disconnected from the instant gratification of the purchase.
The FCAC lists the following additional cons of BNPL plans:
* it may be an expensive way to borrow money if you miss a payment
* fees may apply, meaning you might pay more than the retail price of your purchase
* you need discipline to make your payments on time
* you might put your credit at risk
* you might misjudge the actual/total cost of the purchase
==Alternatives to BNPL==
===Large purchases===
For big purchases, the obvious alternative to BNPL plans is to save the money before making the purchase. 
For unforeseen urgent expenses, the money could come from your emergency fund. For planned expenses, such as a vacation, take that same payment amount (relative to a BNPL plan) and "pay yourself" by saving the money as part of your household budget. The result will be a lower total cost, and you won't be penalized if you miss a payment. Suitable savings vehicules include high-interest savings accounts (HISAs).
If you really need a big-ticket item that can't be paid for with cash (or similar), consider taking a line of credit, which will likely have a lower interest rate.
===Small purchases===
For small purchases that you can actually afford, pay with cash, a debit card, or a credit card. The advantage of the latter, if paid in full every month, is that it gets reported on your credit report, and contributes to a good credit history. Small BNPL loans paid on time, in contrast, are not typically reported to credit bureaus.The Risks of Buy Now, Pay Later in Canada, viewed March 7, 2023.
==See also==
* Living below your means
* Managing debt
==References==
==External links==
*Young and Thrifty, Buy Now, Pay Later: The New Installment Plan Trend, October 2022
Category:Debt management
Category:Personal finance