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Buy Now Pay Later (BNPL): Is it Still a Good Idea?


A man walks in front of an Apple storefront - he may be considering a Buy Now Pay Later offer from the retailer

Online shopping has become incredibly convenient over the past ten years (and even more so during the recent Pandemic). Some initiatives by second-tier finance companies have made the process even more convenient lately: You may have come across a tempting offer when you tried to checkout of your favourite web store: something known as Buy Now Pay Later (BNPL) financing.


These finance offers allow us to purchase high-value items like smartphones, computers, and home furniture without paying in full at the time of purchase. And until recently, most came with the lure of 0% financing.


But are BNPL programs a good idea or just a unique new way for you to get into debt?


In this blog post, we'll explore Buy Now Pay Later options, how they work, and the potential downsides you should consider before deciding on accepting any BNPL offer you come across as you shop online.

Understanding How Buy Now Pay Later Works


When you're shopping online, you might see an option that offers you the ability to split your purchase into manageable monthly payments. These types of BNPL offers usually come up when you’re looking at higher-cost items such as furniture, electronics, and jewellery.


For example, I came across an offer this week for the new iPhone 15 Pro smartphone through the apple.com store site. The phone was advertised for $1499 outright or a reasonable BNPL monthly payment of $65.52 for 24 months at 7.99% interest. This is made possible through Buy Now Pay Later provider Paybright, which partner with Apple Canada to offer financing options.


The way it works is that the Buy Now Pay Later provider pays Apple for the iPhone when you set up the plan, allowing you to make affordable monthly payments. But it also means you are responsible for ensuring the necessary funds are in your bank account on the specified payment date.


Buy Now Pay Later can be advantageous for individuals who want to purchase costlier items but can't afford to pay for them all at once. By spreading the cost over several months (or even years), the purchase becomes more manageable and accessible, making it convenient for those with limited funds on hand.


When Apple began to offer their BNPL strategy they did it at 0% interest, making their tactic of offering potential iPhone customers a great deal (no interest!) a win-win for them (they got paid at the start of the process) and the customer (no interest over 24 months) and making impulse purchases a reality, even with a high margin item like an iPhone or MacBook. But 2023 has seen a steep rise in interest rates worldwide, leading Apple to revise their BNPL offers to a still-reasonable 7.99% interest for the first time.


Buy Now Pay Later – Buyer Beware!


While Buy Now Pay Later can be tempting, it's crucial to be aware of the potential risks and downsides before committing to this payment option:


  1. Financial Strain: If your financial situation becomes strained, such as facing increased expenses or a job loss, the monthly payments may become challenging to manage. Missed payments can negatively impact your credit score, and additional penalties and interest charges may be added to your purchase.


  1. Terms and Conditions: Carefully review the terms and conditions of any Buy Now Pay Later offer before accepting. Understand the payment schedule, interest rates, and potential penalties for missed payments. If anything is unclear, don't hesitate to contact the BNPL merchant for clarification.

  2. Budgeting Considerations: It's essential to assess your budget carefully before committing to Buy Now Pay Later. Ensure you have enough room to comfortably accommodate the monthly payments without jeopardizing your ability to cover other necessary expenses.


Tips for Managing Buy Now Pay Later


If you decide to utilize the convenience of Buy Now Pay Later, consider these tips to help you stay on top of your payments and avoid unnecessary debt:


  1. Prioritize “Needs Over Wants”: During times of financial uncertainty, focus on essential needs rather than luxury items or big-ticket purchases if possible.


  1. Be Prepared for Changes: Keep an eye on your account balance and be aware of any potential interest rate hikes or alterations to the Buy Now Pay Later programs you're using. Unexpected charges can affect your ability to make payments.


  1. Pay Down Your Balance Earlier: To avoid accumulating additional debt, aim to pay off your outstanding balance as soon as possible. Consider making lump-sum payments or paying off the balance in full if feasible.


  1. Stick to a Budget: Create a budget that accounts for Buy Now Pay Later payments and stick to it diligently. Ensure your bank account can accommodate the scheduled withdrawals without causing financial strain.


One last bit of advice: If you find yourself in a difficult financial situation, it's essential to seek assistance. Consult with financial professionals who can help you navigate your finances, develop a manageable strategy to resolve your debts, and get you back on track toward financial stability.


A Licensed Insolvency Trustee can incorporate your BNPL debts into an affordable settlement offer to all your creditors called a Consumer Proposal.


But is BNPL Still a Good Idea?


Buy Now Pay Later can be an attractive option, providing access to products you may not be able to afford otherwise. Even with interest being charged, the amount requested (as in the example above of the Apple iPhone) is still less than the average credit card would require you to pay (anywhere from 13% to 20% compounded) over the same period. However, it's crucial to consider the potential risks of defaulting on the monthly payment and carefully assess your personal financial situation before committing to such an offer.


By understanding the terms, managing your payments, and staying mindful of your budget, you can make an informed decision about whether Buy Now Pay Later the right choice for you.


Remember: Financial responsibility and staying within your means are key to building a strong and secure financial future. Happy shopping!


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