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Often, if you are credit approved, you can pay for your purchase over time in installments. These are convenient ways to make purchases when you need them, but they do have some disadvantages as well.
How BNPL Plans Work
Buy Now Pay Later plans are a popular way to make purchases these days. Many retailers, credit cards and websites offer this service. In today's era of technology, the approval for these plans can happen in just a matter of minutes. Depending on the type of plan you are going with, you may have to put down a deposit. In other cases, you may have an allotted amount of time to pay off the purchase in full interest free. After that, though, the interest rate is really high.
Why Do Companies Offer BNPL?
The Buy Now Pay Later plan, also referred to as Point of Sale (POS) installment loans or retail financing plans, are becoming more and more popular as a payment option for businesses. Fun fact, BNPL actually accounts for 5% of all e-commerce purchases. This is because, as long as they make the payments in the correct amount of time, the consumer can pay off the amount owed without paying any interest.
The idea of BNPL may seem like a way for businesses to lose money, but in reality, it actually does the opposite. BNPL can actually help you get more customers. It allows those customers who didn't have enough funds up front but still want to make the larger purchase. It avoids the high interest rates of a credit card making it similar to if the customer was just paying cash. It also allows the company to build a partnership with the BNPL company. Plus if the interest free payments aren't made in time, then the customer will end up having to pay interest on the item.
How BNPL Programs Make Money
Since BNPL plans are usually interest free if they are paid in the allotted amount of time, you may be wondering how these companies make any money. Well, the answer is actually pretty simple: transaction fees. For every transaction that is made, the company has to pay a transaction fee. This is usually 3% to 6% of the purchase price.
BNPL Companies in Canada
When it comes to finding Buy Now Pay Later companies in Canada, there are quite a few to choose from. They can all be used for different things.
Apple Pay Later
This program allows users to have BNPL financing on purchases from $50 to $1,000. You can pay in four equal installments with no interest and no fees. In order to do this though, you need to set it up and apply using the wallet app. For every purchase you want to use Apple Pay Later you will select that option. Then you will be shown your loan agreement you can sign and see a breakdown of your payments and when they are due. These payments will automatically come from the debit card that you added for this feature.
Afterpay
Another BNPL provider is Afterpay. This one is pretty simple to use, all you need to do is download the app then create an account. Once you do that, you can start shopping. After selecting what you want to purchase, you then select Afterpay as your payment method. This first of the four payments will be paid at the time of purchase, the three remaining payments will be made over the course of 6 weeks.
When you sign up for Afterpay, all you need to provide is your:
- Name
- Phone number
- Address
- DOB
- Debit card
They also have a feature that allows you to see your spend limit and, as you make your payments online, you will get your spend limit gradually increased. They also send you reminders when your payments are due. If you miss your payments, your account will be paused until you're caught up on your payments.
Klarna
The Klarna BNPL service is similar to that of Afterpay. How it works is you shop through their website or the app. They are partnered with some of the top retailers all over the world. By using this service you are able to split your payments over time. The first payment is made when you make the purchase, the remaining balance will be collected every two weeks after that. As long as you make the payments on time, there are no fees. As long as the money is in your bank account, a bank transfer will be made on the day your payment is due.
Paybright
Paybright markets themselves as one of Canada's top BNPL payment plans. They are partnered with plenty of top brands and allow you to split your payments into biweekly or monthly payments. When you apply only a soft credit check is done so there is no impact to your credit score.
Depending on the type of purchase you make, you can split your amount into 4 equal payments with no interest and no fees. Otherwise you can create a monthly payment plan ranging from 6 to 60 months, starting at 0% interest.
Sezzle
Another one of Canada's most popular BNPL companies is Sezzle. First you sign up, then you shop, and select sezzle as your payment method. If you select the BNPL payment plan then you will be able to split your payments into 4 equal amounts over a period of 6 weeks. What differentiates Sezzle from the other BNPL services is that they report your payments to the credit bureaus. This is ideal for someone looking to build their credit score.
Flexiti
Flexiti works a little differently than the other BNPL providers. They are essentially a credit card that is partnered with different companies throughout the country. How it works is you apply for the credit card. You will then receive an approval with a credit limit. This credit card then allows you to make purchases with it up to that credit limit.
The amount of time you have to pay off the amount you owe interest free depends on the advertised promotion at the time. There are usually a few different timelines you can choose from ranging from a few weeks to years. Some of these have no fees, while others do charge additional fees for the service. You then add Flexiti as a payee through your online banking and you can make the payments whenever you choose. This is ideal for those making large purchases but want to make flexible payments. What you should keep in mind though is that if you make late payments, you will then have to pay a higher interest rate than most traditional credit card companies. Either way, until it's paid off, it's still considered credit card debt.
The Downside to BNPL Programs
While BNPL transactions are great for those with low credit scores, not all of these options build credit. You can also miss out on some great rewards and points that traditional credit cards offer. BNPL loans are also considered to be consumer debt, so if you have missed payments, not only could you incur high fees and they often charge interest. You may also have to deal with a collections claim that can negatively affect your credit history. If you already are dealing with lower credit scores and lack credit history, this could make getting any type of financing more difficult than it already is.
With the convenience of these plans, it's also very easy to overextend your finances. Not having to worry about the payments right away can make it easy to delay the payments. Before you know it, you owe extra money and many of these companies charge fees that are more than a traditional loan or credit card. The late fees for missing payments can add to much more than you anticipated spending. Your total purchase amount will just keep getting larger and you will have to find a way to pay it off.
