A Sezzle logo is shown in a person’s online shopping cart on a laptop in Vernon, B.C. on Wednesday, November 18, 2020. Canadians shopping for Sephora makeup, Herschel Supply Co. backpacks and Lush beauty products might have recently noticed a new option during the checkout process: buy now, pay later. The offers come from fintechs like PayBright, Afterpay, Sezzle, Klarna, QuadPay and Affirm. THE CANADIAN PRESS/Jesse Johnston

A Sezzle logo is shown in a person’s online shopping cart on a laptop in Vernon, B.C. on Wednesday, November 18, 2020. Canadians shopping for Sephora makeup, Herschel Supply Co. backpacks and Lush beauty products might have recently noticed a new option during the checkout process: buy now, pay later. The offers come from fintechs like PayBright, Afterpay, Sezzle, Klarna, QuadPay and Affirm. THE CANADIAN PRESS/Jesse Johnston

Be careful with buy now, pay later deals for nominal purchases: experts

These new services focus on nominal purchases and allow consumers to pay in instalments, sometimes interest free

Online shoppers may have recently noticed new options on the checkout pages of their favourite retailers: buy now, pay later.

In addition to standard payment methods like credit cards and PayPal, companies such as Sephora makeup, Herschel Supply Co. backpacks and Lush beauty products offer new options from fintechs like PayBright, Afterpay, Sezzle, Klarna, QuadPay and Affirm.

These new services focus on nominal purchases and allow consumers to pay in instalments, sometimes interest-free — which can be enticing for Canadians who are low on cash during the COVID-19 pandemic.

However the options are not without their pitfalls.

After a qualifying process, the services allow shoppers to pay for their purchases in small increments spread out over weeks or months and sometimes offer access to a tracking portal where they can adjust their payments if unforeseen circumstances come up.

Some, like Afterpay, make most of their revenue from retailers and don’t charge fees or interest to shoppers, but experts advise against them because they often encourage consumers to spend beyond their means.

“The thing that can really get you in trouble is thinking of it as ‘oh $20 here, $60 there is not a big deal,’ but those little purchases can add up really quick,” said Julia Faletski, a Vancouver-based financial adviser at CI Direct Investing.

“You just don’t want to get yourself in this situation where that leather jacket is the thing that sinks your finances.”

However, despite the danger of getting too deep in debt, the services do have their upsides, she said.

For example, if you agree to zero per cent interest rates or rates that are lower than your credit card and can pay something off speedily, then the services can work for you.

Laura Nadler, the chief financial officer of AfterPay U.S., said her company’s service is ideal for consumers who want to stagger payments to line up with a budget or match when a bi-weekly paycheck comes in.

AfterPay’s offering, she said, is also good for people who don’t want to take out a traditional loan or pay upfront fees or interest.

When deciding whether to use a pay now, buy later service for a nominal purchase, think about it in steps, said Chantel Chapman, the Vancouver-based founder of the W-T-Finances blog and a former financial literacy consultant.

The first step is to ask yourself why there is so much urgency to purchase something. A lot of people spend to avoid emotions like boredom, pain or feelings of inadequacy, which can be handled in more healthy and alternative ways, she said.

The second step is to think about why you’re considering a plan.

“You may feel a sense of shame for spending that much money on yourself and it feels less painful to spread it out over four months, so that’s something to look out for,’” said Chapman.

The last step is to think about what you’re getting yourself into.

Buy now, pay later plans can be difficult to understand and carry a mental cost because you’re suddenly adding an extra and recurring payment to your monthly budgeting, she said.

The plans can become a bad deal if you’ve overextended yourself by too much, have no prospect of being able to afford whatever you’re buying or haven’t looked closely at the terms.

“Make sure that you have a really clear idea of what you owe and…make sure that you abide by the payment schedule because if you fall behind, this is where the penalties really become significant,” said Faletski.

AfterPay’s Nadler said more than 90 per cent of its customers pay on time and those who don’t are prevented from purchasing more items.

However, Faletski warned that users of buy now, pay later services who aren’t careful can rapidly see their credit score take a hit and end up with even more debt to pay off.

If you end up in that situation, Chapman said it’s often time to turn to credit counselling or professionals to help put together a plan for recovery.

The bottom line, she said, is that you should think long and hard when mulling buy now, pay later plans and don’t ignore the red flags.

“If you’re in a situation where you only have this small amount of money…or if you don’t even have any money to pay for this stuff…you should not.be using these payment plans.”

Tara Deschamps, The Canadian Press

Like us on Facebook and follow us on Twitter.

Want to support local journalism? Make a donation here.

Just Posted

FILE – Perry Bellegarde, National Chief of the Assembly of First Nations, takes part in an event on Parliament Hill in Ottawa on Tuesday, July 7, 2020. THE CANADIAN PRESS/Sean Kilpatrick
Indigenous Peoples Day must be a ‘call to action’, says Assembly of First Nations chief

Discovery of children at Kamloops residential school site must lead to change, Perry Bellegarde says

It's believed the Sacred Hearts church on PIB land burned Sunday night. (Aileen Mascasaet Maningas)
Church burns on Penticton Indian Band land

The fire started around 1:30 a.m. Monday morning

The Pierre family, an Indigenous family, once lived in what is now downtown Summerland. Today, Pierre Drive is named in honour of the family. (Photo courtesy of the Summerland Museum)
Pierre family played role in Summerland’s history

Downtown Summerland was once Penticton Indian Reserve #3

This parking on the east side of Martin Street will be removed permanently Monday morning (June 21, 2021) to put in the Lake to Lake bike lane. (City of Penticton)
Parking removed permanently to make way for bike lane in downtown Penticton

Work begins Monday morning to replace parking spots with bike lane on Martin Street

Jaimee Peters photo of a Willow Midwives helping with a birth. Willow closed its doors March 31 because of a shortage of midwives. (Contributed)
South Okanagan’s only midwifery to re-open this summer

Willow Community Midwives was forced to close because of a shortage of midwives

Marco Mendicino, Minister of Immigration, Refugees and Citizenship during a press conference in Ottawa on Thursday, May 13, 2021. THE CANADIAN PRESS/Sean Kilpatrick
Canada to welcome 45,000 refugees this year, says immigration minister

Canada plans to increase persons admitted from 23,500 to 45,000 and expedite permanent residency applications

The border crossing into the United States is seen during the COVID-19 pandemic in Lacolle, Que. on February 12, 2021. THE CANADIAN PRESS/Paul Chiasson
Border quarantine to soon lift for fully vaccinated Canadians

Eligible travellers must still take multiple COVID-19 tests

A portion of the George Road wildfire burns near Lytton, B.C. in this Friday, June 18, 2021 handout photo. THE CANADIAN PRESS/HO, BC Wildfire Service *MANDATORY CREDIT*
Blaze near Lytton spread across steep terrain, says BC Wildfire Service

Fire began Wednesday and is suspected to be human-caused, but remains under investigation

Blair Lebsack, owner of RGE RD restaurant, poses for a portrait in the dining room, in Edmonton, Friday, June 18, 2021. Canadian restaurants are having to find ways to deal with the rising cost of food. THE CANADIAN PRESS/Jason Franson
Canadian restaurateurs grapple with rising food costs, menu prices expected to rise

Restaurants are a low margin industry, so there’s not a lot of room to work in additional costs

RCMP crest. (Black Press Media files)
Fort St. John man arrested after allegedly inviting sexual touching from children

Two children reported the incident to a trusted adult right away

Barbara Violo, pharmacist and owner of The Junction Chemist Pharmacy, draws up a dose behind vials of both Pfizer-BioNTech and Oxford-AstraZeneca COVID-19 vaccines on the counter, in Toronto, Friday, June 18, 2021. An independent vaccine tracker website founded by a University of Saskatchewan student says just over 20 per cent of eligible Canadians — those 12 years old and above — are now fully vaccinated. THE CANADIAN PRESS/Nathan Denette
At least 20% of eligible Canadians fully vaccinated, 75% with one dose: data

Earlier projections for reopening at this milestone didn’t include Delta variant

Emily Steele holds up a collage of her son, 16-year-old Elijah-Iain Beauregard who was stabbed and killed in June 2019, outside of Kelowna Law Courts on June 18. (Aaron Hemens/Capital News)
Kelowna woman who fatally stabbed Eli Beauregard facing up to 1.5 years of jail time

Her jail sentence would be followed by an additional one to 1.5 years of supervision

Cpl. Scott MacLeod and Police Service Dog Jago. Jago was killed in the line of duty on Thursday, June 17. (RCMP)
Abbotsford police, RCMP grieve 4-year-old service dog killed in line of duty

Jago killed by armed suspect during ‘high-risk’ incident in Alberta

Most Read