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 the purchase of products and services. With this type of plan, you are financing your purchase with credit. You can purchase something you need without having to pay for it in full right away. You can spread the payment over a period of time to fit your budget.

These plans are also called BNPL, retail financing plans, instalment loans or retail credit services.

There are different payment models available, but all of them allow you to defer payments.

Companies usually offer a promotional rate for purchases made with a buy now, pay later plan. This can be as low as 0% interest. However, if you don’t make your payments on time, you will likely have to pay fees.

Some companies charge an administration fee to set up the buy now, pay later plan. Typically, you have to pay this fee up front.

Make sure you understand the terms and conditions of your buy now, pay later 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 fintech

Your agreement with a financial service provider usually specifies:

  • your 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.

Learn more about fintech.

Types of buy now, pay later plans

There are 2 types of buy now, pay later plans. 

Equal payment plan

With an equal payment plan, you make regular payments. These are also called instalment payments. The terms of your agreement set out the minimum amount you must pay each pay period. 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 own payment plan.

Payment models of buy now, pay later plans

When you sign up for a buy now, pay later plan, you are 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 methods, including:

  • pre-authorized debit transactions
  • pre-authorized credit card transactions
  • a retail credit card
  • an option on your existing credit card
  • a personal loan

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 can purchase something you need and spread the payment over a period of time to fit your budget
  • you can 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 can 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 and in line with the plan
  • 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

Make a complaint about your buy now, pay later plan

If you have a complaint related to your buy now, pay later plan, contact the buy now, pay later plan provider. Depending on your contract, you may also need to contact the retailer.

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 regulated provincially or territorially, contact the appropriate provincial or territorial regulator.

For more information about what rules apply to retailers or to make a complaint, contact your provincial or territorial consumer protection office.

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