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Personal Finance

Be cautious when using Buy-Now-Pay-Later for online purchases

Missed payments and overspending are two mistakes to avoid when using this trending e-commerce option, experts warn

Two people sit on a couch while they open packagesBNPL is increasing consumer’s order values, where they buy more than is intended because the payment can be stretched out (Getty Images/Nitat Termmee)

It’s probably caught your eye on your favourite e-commerce sites: “4 interest-free payments of $39.99.”

The service is called Buy Now Pay Later or BNPL and it’s making headway, particularly with COVID-19 and the strong growth of online shopping and growth of e-commerce. In Canada, BNPL payments are expected to grow 55 per cent annually and reach almost US$4 billion in 2021, according to a recent report.

The concept of deferred payments isn’t new (in fact, it’s more than 200 years old!) but the technology behind it is. Retailers of all sizes are adding it to their e-commerce platforms using providers such as Affirm, Klarna and AfterPay, with big banks like Scotiabank and companies like Visa catching on, too. 

Here are three things consumers should be mindful of before using this payment option.


Understanding how BNPL works is key before accessing what is simply another loan, advise experts. 

In brief, BNPL is an instalment-loan fintech service that allows consumers to divide their purchases up into multiple equal payments, instead of paying for it in full. The first payment is due immediately, with the remaining billed over a set amount of time (typically “Pay in 4”, but models can vary). 

“All they have to do is click a button and its four payments, often interest free. It’s seamless,” says, retail expert Michael LeBlanc, founder and president of M. E. LeBlanc and Company. 

A short online application must first be filled in at checkout (or via the BNPL provider’s site directly) providing basic personal information and a payment method (typically debit or credit card), from which instalments will be withdrawn. A soft credit check, which does not impact credit rating, may also occur. 

Once approved, often in seconds, consumers can use the service on multiple purchases, as well as on multiple retail sites that are partnered with that same BNPL provider. 

This, warns CPA Jean-Marie Chan Kin, founder of Money Coach JM, is where the trouble can start, particularly if approval criteria isn’t as stringent as traditional credit and loan applications, allowing consumers with bad or no credit to be easily approved. 

“If it makes you spend more on your wants instead of your needs and you have to pay in the future, that can lead to debt,” he says. “It comes back to basics of making sure you’re not spending more money than you earn.” 


Though the lure is interest-free payments, BNPL comes with penalties if you miss one. 

These consequences include interest, late fees or suspended accounts, but vary by provider. Affirms’ PayBright doesn’t charge fees but does prevent you from making future purchases, while AfterPay caps late fees at 25 per cent of the purchase and pauses accounts with missed payments.

And consumers are indeed falling behind. According to a recent survey by CreditKarma out of the U.S., 34 per cent of those who used BNPL services have missed one or more payments and 72 per cent believe it had impacted their credit rating. 

CPA Blair Evans, director of tax and estate planning at IG Wealth Management, recommends reading the terms and conditions carefully to understand the penalties before using the service. This could be easily overlooked, he cautions, given the instantaneous nature of the service and rush to complete a transaction. Consumers may feel urgency to check out if, for example, it’s a limited-time sale or if the item they’re purchasing is labelled “limited stock”. 

“Be cautious when making any purchase,” says Evans. “Ask whether it’s something that you would have purchased if you had to pay for it in full today.”

Buyers should also keep track of purchases made using BNPL, providers used (if more than one) and the accounts—be they debit or credit—payments are withdrawn from to make sure they are in good standing. 


BNPL has emerged out of consumers’ demand for choice, says LeBlanc.   

“The mega trend is choice right now. We’re used to more choice and we are willing to look around for those options,” he says. 

What was once used primarily on big ticket items, says Leblanc, is now accessed to purchase smaller items, too. From furniture and apparel to concert tickets and travel, it’s emerging as a preferred payment method, according to the CreditKarma survey, particularly for younger Gen Z and millennial shoppers whom the service is targeting

It’s also increasing consumer’s basket size and improving conversion, Leblanc adds, where they buy more then they came for, because the payment can be stretched out

The ease of the transaction also adds the risk of over (and losing track of) spending, warns Evans, especially [when] multiple BNPL providers are accessible across different retail sites. “Whenever you’re making a purchase, make sure it’s in line with your overall budget and financial plan,” he says. 

Most importantly, “ensure that the purchase isn’t having a negative impact on your retirement or other savings goals. This is critical.” 


CPA Canada can help you (or your clients) build, and stick, to a financial plan with its financial literacy resources. These include in-depth guidance using financial health publications, practical tools (including money management worksheets) and staying on top of trends with the Mastering Money podcast.