Buy now, pay later plans

From: Financial Consumer Agency of Canada

What is a buy now, pay later plan

Many companies offer buy now, pay later plans for purchases such as furniture, appliances, electronics and services. These are also called retail financing plans and retail credit services. With this type of plan, you can purchase something you need and spread the payment over a period of time to fit your budget.

A buy now, pay later plan generally includes:

  • an agreement with the company for the purchase of a product or service
  • an agreement with a financial service provider to finance a purchase

To finance your purchase, a financial service provider will generally offer one of the following options:

  • a retail credit card
  • a personal loan

Typically, you will get a promotional interest rate on your purchase for the duration of your term. Promotional interest rates can be as low as 0% but it can come at a cost if you are late in making a payment or if additional fees apply.

Types of buy now, pay later plans

There are two common types of buy now, pay later plans.

Equal payment plan

With an equal payment plan, you must make regular payments. The terms of your agreement outline the minimum amount you have to pay each month. You make payments until you’ve paid the full balance.

If your purchase is financed with a retail credit card, the monthly buy now, pay later payment amount can 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

Deferred payment plan

In a deferred payment plan, you must pay the balance you owe before the end of your term. There are no set payment amounts. It’s up to you to manage your own payment plan.

What happens if you can’t pay on time

If you miss a payment of if you don’t pay your balance before the end of your term, you’ll lose your promotional interest rate. For example, the interest rate could go from 0% to 29% if you missed the payment due date by as little as a day. You’ll have to pay a higher interest rate until your balance is paid 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

What to expect with a buy now, pay later plan

When you sign up for a buy now, pay later plan, you’re usually applying for a retail credit card. The credit card issuer may run a credit check to see if you qualify. The credit card issuer can also report your payment history to the credit bureaus.

You can take advantage of a promotional interest rate on your buy now, pay later purchase. With a retail credit card, you might be able make other purchases. The promotional interest rate might not apply to these other purchases. If you can’t make the minimum payment, you could pay a high interest rate on these other purchases.

If you no longer want to use your retail credit card and you want to cancel it, it is your responsibility to do so. Simply cutting up the card or not using it will not automatically cancel the credit card account. To cancel your retail credit card, you must pay your balance in full and you must contact your issuer.

After cancelling the card, check your credit report to make sure it shows that your card account has been closed. Give your credit card issuer enough time to report the change to the credit bureaus. This usually takes about 30 days.

Before you sign up for a buy now, pay later plan, make sure you understand the terms and conditions. Ask the retail representative or the credit card issuer about anything you don’t understand.

Learn more about your rights and responsibilities regarding credit cards.

Learn more about your credit report.

Costs of buy now, pay later plans

In addition to interest charges, you may have to pay other fees when you sign up for a buy now, pay later plan. For example, many companies charge an administration fee. This fee is charged as a set-up for the buy now, pay later plan and is usually paid up front.

When you sign up for a retail credit card, you are also agreeing to pay credit card fees. This can include an annual fee. Read your credit card agreement carefully.

Learn more about credit card fees.

Don’t forget about other fees when purchasing items on a buy now, pay later plan.

These fees apply regardless of the payment method and can include:

  • environmental fees
  • delivery 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:

  • do you really need the item you plan to purchase
  • do you have the discipline to pay off the balance before the end of the term
  • will you be able to pay the balance on time and continue to cover your regular expenses
  • can you afford the higher interest charges if you miss a payment or can't pay off the balance by the end of the term
  • can you get a discount off the purchase price if you pay the full amount right away

Before applying for buy now, pay later plan, compare the pros and cons.

Pros of buy now, pay later plans

  • you can purchase something you need, like an appliance or furniture and spread the payment over a period of time to fit your budget
  • you can make a purchase you may not be able to pay in full right away
  • you can take advantage of a low or 0% interest rate if you make your payments on time and pay your balance before the end of your term

Cons of buy now, pay later plans

  • administrative fees might apply, meaning you might end up paying a lot more than the retail price for your purchase
  • you need discipline to make your payments on time and in line with the plan
  • you might take on a debt that you can’t afford or doesn’t fit your budget
  • you might put your credit score at risk if you miss payment

Learn how you can improve your credit score.

Make a complaint about your buy now, pay later plan

If you have a complaint related to your buy now, pay later plan, you should contact your retail credit card provider or your personal loan provider. Depending on your contract, you may also need to contact the company or retail store.

All federally regulated financial institutions must have a complaint-handling process in place.

File a complaint with your financial institution.

If your retail credit card provider is provincially-regulated, contact the appropriate provincial regulator.

For more information about what rules apply to companies such as retail stores or to make a complaint, contact your provincial or territorial consumer protection office.

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