If you’ve done any kind of online shopping recently, you will have noticed a Buy Now Pay Later option at the checkout claiming things like “Don’t pay for 12 months – Zero Percent APR.” These programs are a newer form of financing that gives you access to large ticket items like mobile phones, computers, and furniture that you may not have otherwise been able to afford.
The more popular Buy Now Pay Later providers in Canada include Klarna, Flexiti, Sezzle, and Paybright. Each has different terms and conditions, and all of these providers require financing approval and the payment of all taxes and shipping charges before releasing your purchase to you.
How does Buy Now Pay Later Work?
Let’s say you have your eye on a shiny new iPhone from the Apple Canada store site. You visit the site, find the model you like and then head towards online checkout. That’s when you notice a “$58.29 a month for 24 months at 0% interest” option on your screen.
Apple uses Paybright (formerly known as Affirm) as their Buy Now Pay Later provider. Apple will cover the interest fees to Paybright on your purchases, which is how Paybright makes their money. You’re only responsible for ensuring the amount of $58.29 is in your bank account on the date Paybright deducts it every month.
It’s very convenient for customers because it allows them to buy newer technology that they otherwise couldn’t afford to purchase all at once.
The downside of Buy Now Pay Later
For most of us, $58 a month seems a lot easier to handle than one large payment, unless the funds are not in your bank account.
That could prove problematic if your rent goes up, grocery and gasoline costs increase or if you find yourself laid off from your job due to current economic pressures. Your Paybright transactions could “bounce” and result in damage to your credit score, add-on penalties and the addition of interest charges on your purchase.
It’s always a good idea to carefully review all the terms and conditions of any Buy Now Pay Later offer and make sure you can handle the monthly payments required before you click “accept” on that online purchase. You can even call them and ask for clarification.
Most of all, make sure to review your budget carefully to ensure you have enough cushion room to handle the extra costs each month.
Managing your payments
Most Buy Now Pay Later programs are linked directly to your bank account, so remember the rule of “Needs Versus Wants.” Focus on your primary “needs” during a recession and avoid using Buy Now Pay Later for luxury or big-ticket “wants” if you can.
Here are some other tips to keep in mind:
- Be prepared for interest rate hikes: During a recession, you could encounter an interest rate hike or other changes to the Buy Now Pay Later programs you’re already using. Keep an eye on your account balance and watch for once-hidden charges that could suddenly appear.
- Pay your balance off quickly: It’s important to pay off your outstanding balance as quickly as you possibly can to avoid further debt. Consider making a lump-sum payment or even clearing off the balance in full to avoid further interest.
- Be mindful of your budgeting: It’s essential to have a budget in place and to stick to it. Be mindful of how much you’re spending on Buy Now Pay Later purchases and make sure your bank account can handle any withdrawals that have been set up.
What to do if you’re struggling to make payments
If you find yourself in a difficult financial situation, our team is here to help. We’ll help you navigate your finances, develop an affordable strategy to resolve your debt, and get you back on track financially.
Ready to talk? Book a free consultation today to get started.