By Jasmin Brown

BDO Debt Solutions

Buy Now, Pay Later, The Benefits and the Drawbacks

Dec 23, 2024 | 12:10 PM

“The views and opinions expressed in this article are those of the author and do not necessarily reflect the position of Pattison Media and this site.”

Buy Now, Pay Later services have surged in popularity, offering consumers the flexibility to purchase items without paying the full amount upfront. These services have revolutionized the way people shop, particularly by making larger purchases more manageable. And now, we are starting to see these offers even on smaller ticket items as well. The appeal of these offers lies in the promise of spreading out payments over time. While there are some appealing factors to Buy Now, Pay Later offers, there are also some major drawbacks.

How Buy Now, Pay Later Works

Buy Now, Pay Later is a payment option that lets you split a purchase into multiple smaller payments, often without any interest or fees. Typically, you make the first payment when you buy the item, and the rest is divided into a set number of payments after that. The most common plan is four payments over six weeks. For example, if you buy something for $300, you would pay $75 at checkout and then make three more payments of $75 every two weeks until the total $300 was paid off.

These arrangements are becoming a popular way to pay for things, particularly online.

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The Benefits

For consumers who need immediate access to goods but lack the upfront cash, a Buy Now, Pay Later arrangement can be a lifeline, offering the chance to secure necessities without disrupting their budgets. Some additional benefits to Buy Now, Pay Later are as follows:

1. Interest Rates and Fees

Many Buy Now Pay Later services offer interest-free payment options, making it a popular alternative to credit cards, which often come with fees and interest charges.

2. Payment Schedule

These arrangements set out a clear repayment plan, which can be helpful for those who struggle to manage their money. This can be particularly helpful to those with irregular incomes.

3. Accessibility

These arrangements can be accessible even to those that may have poor credit. Many do not require a credit check, making them available to more people.

4. Simplify Large Purchases

Buy Now, Pay Later may make it easier for people to afford larger purchases.

The Drawbacks

It is so important to be aware that even though there is some ease and better accessibility with Buy Now Pay Later plans, there are also potential pitfalls:

1. Can Lead to Impulse Spending

The flexibility to delay payments can encourage impulse buying, as consumers may underestimate the long-term financial impact of multiple payment plans.

2. Can Be Hefty Fees

While many Buy Now Pay Later services advertise themselves as interest-free, missed payments often incur hefty fees. These late charges can quickly accumulate, sometimes rivaling the interest rates of traditional credit cards.

3. Negative Credit Score Impact

Missed payments can harm credit scores if reported to credit bureaus, which is an often-overlooked consequence.

4. Lack of Consumer Protection

Another concern with these services is their lack of robust consumer protections compared to credit cards. Disputes over defective goods or fraudulent transactions may not be as straightforward to resolve, leaving consumers vulnerable in some situations. Furthermore, the fine print in these agreements can sometimes include hidden fees or terms, making it crucial for users to fully understand the commitments they are making.

5. Financial Strain

Over-reliance on BNPL for everyday purchases can also lead to financial strain,

reducing overall flexibility and leading to debt dependency.

To use Buy Now Pay Later wisely, consumers need to approach these arrangements with caution. Understanding the terms of the agreement and ensuring that payments fit within a realistic budget is essential. The plans can be a helpful tool, particularly for planned or necessary purchases, but it requires financial discipline. When used responsibly, it offers a convenient way to manage costs; however, its potential risks mean it should never be seen as a substitute for sound financial planning. By understanding both the advantages and risks, consumers can make informed choices that align with their financial goals. As with any financial tool, moderation and awareness are key to ensuring that a Buy Now Pay Later arrangement remains a benefit rather than a burden.

If you are having trouble making ends meet each month, finding the right debt solution can help. Visit the BDO Debt Solutions website for more information, or call 1 855 BDO DEBT to book a free, no obligation consultation.

Jasmin Brown is a Senior Vice President overseeing the insolvency practice in Saskatchewan. She is committed to providing creative and practical debt solutions with empathy, understanding and professionalism to help people overcome their financial difficulties.