Buy now, pay later (BNPL) – Convenience, but at what cost? 

If you’ve ordered anything online lately, you’ve probably noticed that at checkout you have the option to buy now and pay later. Sounds great, right?  

Say you find the perfect thing for your patio, a summer outfit, or a limited-edition pair of sneakers, they cost more than you’d usually shell out, but instead of the price being $200 at check out, it is now 4 interest free payments of $50.  

What do you do? Would you buy this today if BNPL wasn’t an option? Is this a want or a need? $50 a month isn’t so bad…  

BNPL companies like PayBright and Afterpay (amongst others) offer short-term financing that is usually interest and charge free. These options, that used to only be offered for big ticket items such as appliances and furniture, are now applied to almost every online checkout. Household goods, clothing, accessories, cosmetics, sporting goods, you name it. BNPL options gained a lot of popularity during the pandemic, especially with Millenials and Gen-Z, but perhaps buying now and paying later isn’t always the way to go. As with all financial things, it’s best to go into a situation informed. 

Here are some positives: 

  • BNPL options make larger purchases more accessible  
  • They are very convenient  
  • They let you pay in installments – smaller, more manageable payments  
  • For those with low credit scores, BNPL companies usually only do a soft check, or no credit check at all  

But buying now and paying later does have a downside: 

According to a 2021 survey by Credit Karma 44% of people have used a BNPL. Of those, 34% of people have fallen behind on their payments, and 72% of those who have fallen behind on payments believe their credit score has dropped because of it. So, when you’re at the checkout there are things to consider. 

  • You are essentially in debt; these are short term no interest loans  
  • You are buying more than you can afford at the time and you may overindulge – installment buying makes it so much easier to spend more than you usually would  
  • Those with bad credit can use this too easily 
  • It is one more thing to keep track of financially 
  • Returning things gets tricky, you are now dealing with a credit card as well as a BNPL 
  • Missed payments are reported to the credit bureau  
  • Failure to pay on time or at all can lead to late fees, deferred interest, debt collection  

The best practice is to not buy things unless you have the cash to pay for them upfront. But if you do decide to use a BNPL read the FAQs and fine print of the one you are considering. Know what you’re signing up for so you can set yourself up for success.  

Looking at personal loan options? Reach out to us at NBCU to discuss what we offer.

Author: NorthernBirchCU

A co-operative financial institution based out of Toronto, Ontario.

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