Buy now, pay later plans
What is a buy now, pay later plan
Many companies offer buy now, pay later (BNPL) plans for the purchase of products and services. With this plan, you’re financing your purchase with credit.
You purchase something you need without having to pay for it in full right away. You spread the payment over time to fit your budget.
These plans are also called:
- installment payment plans
- retail financing plans
- installment loans
- credit card installment plans
- retail credit services
There are different payment models available, but they all allow you to pay later.
Companies may offer a promotional rate for purchases made with a buy now, pay later plan. This may be as low as 0% interest. However, if you don’t make your payments on time, you’ll usually have to pay fees.
Some companies charge an administration fee to set up the plan. Generally, you pay this fee at the time of your purchase.
Make sure you understand the terms and conditions of your plan.
How buy now, pay later plans work
A buy now, pay later plan generally includes the following agreements:
- an agreement with the retailer for the purchase of a product or service
- an agreement with a financial service provider to finance a purchase
Financial service providers include:
- financial institutions, including banks, credit unions and caisses populaires
- financing companies
- money services businesses (MSB), including financial technology companies (fintech)
Your agreement with a financial service provider usually specifies:
- the purchase amount
- the payment amounts
- the frequency of the payments
- the number of payments
- the interest rate
- the fees
- the payment method
Ask the retailer or the financial service provider about anything you don’t understand.
Types of buy now, pay later plans
There are 2 types of plans.
Equal payment plan
With an equal payment plan, you make regular payments. These are also called installment payments. The terms of your agreement set out the minimum amount you must pay and at what frequency. You make payments until you pay the full balance.
Deferred payment plan
In a deferred payment plan, you must pay the balance you owe by the due date. There are no set payment amounts. You manage your payment plan.
Payment models of buy now, pay later plans
When you sign up for a buy now, pay later plan, you’re financing your purchase with credit. This means you enter into an agreement with a financial service provider. The financial service provider may run a credit check before approving your application.
To finance your purchase, financial service providers offer various payment models, including:
Pre-authorized debits (PAD)
With a PAD payment plan, your regular, equal payments are automatically debited from your bank account. You give your banking information to the financial service provider. They take the regular payment amount from your bank account.
Usually, your first payment is on the purchase date.
If you don’t have funds in your account to cover the payment amount, you may have to pay fees.
These can include:
- a missed payment fee charged by the financial service provider
- a non-sufficient funds (NSF) fee charged by your financial institution
Pre-authorized credit card transactions
With a pre-authorized credit card payment plan, your regular, equal payments are automatically charged to your credit card. You give your credit card information to the financial service provider. They charge the regular payment amount to your credit card. Some financial service providers charge a processing fee with each payment. This adds to the cost of your original purchase.
Usually, your first payment is on the purchase date. The transaction appears on your credit card statement. It’s your responsibility to pay your credit card on time. Make sure your payment covers the cost of the buy now, pay later purchase. This will help you avoid additional fees with your credit card provider.
Some credit card providers don’t allow buy now, pay later transactions. They may block your transaction.
Option on your credit card
Some credit card providers offer a buy now, pay later option for qualifying purchases. Credit card providers may refer to this option as equal installment payments. You may be able to have multiple buy now, pay later plans on your credit card.
With this option, the retailer charges the total amount of your purchase to your credit card. Your credit card provider converts your purchase into an installment payment plan. This means they split your purchase into equal payment amounts.
To take advantage of this option you must request it with your credit card provider. Check to see if you need to request it before or after your purchase.
With this option, you may take advantage of a promotional interest rate. Promotional interest rates may be as low as 0%.
There’s usually a minimum purchase amount. Credit card providers determine the purchase qualification process.
Read your credit card agreement carefully. Ask your credit card provider if there’s anything you don’t understand.
Retail credit cards
Some retailers offer credit cards with a buy now, pay later payment option. A financial institution, like a bank, issues the retail credit card. You may be able to only use your card at a specific retailer or set of retailers.
Some retail credit cards come with a promotional interest rate for your buy now, pay later purchase. Promotional interest rates may be as low as 0%.
If you miss a payment, you may lose your promotional interest rate. This is also the case if you don’t pay your balance in full before the due date. For example, the interest rate could go from 0% to 37.99% if you miss the minimum payment due date. You’ll have to pay a higher interest rate until you pay your balance in full. This could be costly.
Depending on the terms of your plan, a late payment means you’ll pay interest on either:
- the full amount from the date of purchase
- the unpaid balance
When you sign up for a retail credit card, you agree to pay any fees associated to the card. This may include an annual fee. Read your credit card agreement carefully.
The buy now, pay later payment amount may appear on your statement as follows:
- included as part of your minimum monthly payment
- as a transaction you need to pay in addition to the minimum monthly payment
You may be able to make other credit card purchases using this card. The promotional interest rate may not apply to these other purchases.
A retailer may offer to finance your purchase with a personal loan. They’ll provide you with the loan application.
With this option, you enter into an agreement with a financial institution determined by the retailer. You borrow a fixed amount of money and agree to pay it back over a period. You must pay back the full amount, including any applicable interest and fees.
Things to consider before you get a buy now, pay later plan
Before you sign up for a buy now, pay later plan, consider the following:
- make sure you really need the item you plan to purchase
- make sure you have the discipline to pay off the balance by the due date
- determine if you can afford the higher interest charges and applicable fees if you miss a payment or can’t pay off the balance by the due date
Before applying for a buy now, pay later plan, compare the pros and cons.
Pros of buy now, pay later plans
- you may purchase something you need and spread the payment over a period to fit your budget
- you may take advantage of a low or 0% interest rate if you make your payments on time and pay your balance before the due date.
Cons of buy now, pay later 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
- it may lead to over-borrowing if you take on a debt that you can’t afford or that doesn’t fit your budget
- you might put your credit at risk
- you might misjudge the actual/total cost of the purchase
- it could encourage you to spend beyond your means or make impulsive purchases
Making a complaint about your buy now, pay later plan
If you have a complaint related to your buy now, pay later plan, contact the plan provider. Depending on your agreement, you may also need to contact the retailer.
Learn what rules apply to retailers and how to make a complaint through your provincial or territorial consumer protection office.
All federally regulated financial institutions must have a complaint-handling process in place.
If your retail credit card provider is regulated provincially or territorially, contact the appropriate provincial or territorial regulator.
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