The option buy now, pay later is everywhere. Should customers use it?

The first time Natalie Zidanic used an option to buy now, pay later, she split the price of an Aritzia jacket at $ 325 into four interest-free payments over two months.

The 26-year-old Toronto woman said she did not necessarily need to use the Afterpay service to cover the cost of her sister’s Christmas present.

“But the ability to cut this large purchase down into more manageable payments was enticing because it allowed me the agency to manage my cash flow, especially during holidays where credit card bills typically count quickly,” she said. “By using Afterpay, I can pay my balance more slowly without having to worry about interest.”

Mrs Zidanic is one of many young adults who have taken up the BNPL opportunity, which is aimed at millennials and Gen. WITH.

BNPL is simple and convenient: When checking out, customers fill out a card application and provide basic personal information, including a link to a debit or credit card. But while splitting the cost of a purchase into four interest-free payments sounds like a lot, studies have shown the plans get customers to spend more than they would otherwise have done.

Jessica Moorhouse, a millennial money expert, lecturer and accredited financial advisor to Canada, said the biggest drawback is the psychological aspect.

“The biggest thing I say to people is, ‘Never spend money you’re not having.’ in living within your means. “

A U.S. survey found that among shoppers who had used BNPL, nearly 40 percent had missed more than one payment. So what happens to customers who do not pay on time? They face interest, late fees and suspended accounts. Adding to the confusion: Every business has its own rules, so be sure to read it in small print before logging on.

Installment payments are not a new concept. From the time of recess plans to the promises that there is no money down on 1980s infomercials, there have long been opportunities for shoppers to pay for purchases in chunks over time.

But over the past 18 months, a number of new fintech companies offering high-tech versions of this service have flooded the Canadian market.

Launched in Canada in August 2020, Afterpay has partnered with retailers targeting Gen Z and millennials, including Aritzia, Lululemon, Urban Outfitters and Nars. Other BNPL companies also operate here, such as Klarna, PayBright and Sezzle.

And many of the big banks, including the Canadian Imperial Bank of Commerce, the Royal Bank of Canada and the Bank of Nova Scotia, are stepping into the game and launching – or at least announcing – their own installment payment programs.

According to Worldpay’s Global Payment Report 2021, “BNPL has grown to account for 2.1 percent of all global e-commerce transactions by 2020,” likely helped along the way by an increase in online shopping during the COVID-19 pandemic. Ecommerce sales almost doubled from May 2019 to May 2020, according to Statistics Canada.

BNPL plans are aimed at young adults who may not have a lot of money, but who are exposed to expensive lifestyles and consumer culture on social media, Ms Moorhouse said.

“[They] want to be able to participate and feel like they are part of that culture even though they may not have the finances to actually get all the stuff and these buy now, pay later services give them an opportunity to come therefor. It seems like it’s a solution, but this is really just a way for this company and retailers to get your money faster. ”

Like credit card companies, BNPL apps lend users money on short terms. But there are differences: Credit card companies will charge interest on your balance if it is not paid within the monthly due date, while some BNPL borrowers will instead charge fees if a payment is not made within seven days of a scheduled installment.

BNPL lenders generally do not perform credit checks before approving customers’ accounts, but they can report cases of late or non-payment, which can negatively affect a customer’s credit score.

Most notably, unlike a credit card, shoppers cannot use BNPL to build a good credit score by using it responsibly.

Experts agree that the best way to spend your BNPL – and in fact all your debt – is to pay what you owe on time. Ms Zidanic said using it has made her a more responsible shopper. “Purchases may certainly seem more affordable at the moment – charging $ 75 on your credit card is less of a hassle than $ 300 at one time, for example – but it has never encouraged me to spend more,” she said.

“In fact, the opposite is happening. Knowing that over a period of six weeks I will be charged four times helps me budget with purchases of all kinds (groceries, restaurants, etc.). See the rate payments and the payment schedule certainly affect differently, ”Ms Zidanic said.

But for shoppers who often fall over that impulse purchase, BNPL apps can make it harder to stick to a budget.

“Every time you take on consumer debt like this, you really have to make sure you have the money available to actually pay for it,” said Stephanie Douglas, a Toronto-based certified financial planner. “And if you buy more things by using these [apps], it can get a little bit more complicated. “

To protect yourself, Ms. Douglas recommends reading the entire contract you sign with the BNPL lender to make sure you understand how they will handle returns, not to mention fraud, and what the consequences are for non-payment, both for your account and your credit score.