Buy Now, Pay Later: Are Installment Plans a Budget Gain or a Financial Failure?

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Buy Now, Pay Later, Where Have You Been All Our Lives?

The treasures of social media memes echoing the sentiment don’t lie: According to Statistics Canada, e-commerce sales hit a record $ 3.9 billion in May 2020, an increase of 110.8% from May 2019. And it looks like our mall-free shopping habits are here to stay: 44% of Canadians say COVID-19 has shifted their payment preferences to long-term digital and contactless shopping. Those buy now, pay later programs were well synchronized, right?

While installment payment options have seemingly popped up overnight, you might be surprised to learn that Buy It Now and Pay On Pay (BNPL) services have been available for some time.

PayBright, a Toronto-based service that launched in Canada in 2017 and has partnered with more than 7,000 merchants, from Wayfair and Endy to Sephora and Hudson’s Bay, was recently acquired by Affirm, a BNPL American, for the modest sum of 340 million dollars.. US-based Sezzle also launched on this side of the border in mid-2019 and has more than 1,000 retail partners, including brands with online stores like Matt & Nat, Knix and Frank and Oak.. Afterpay, the one with the most explicit name, launched in Canada in August 2020, after a success in Australia, New Zealand, the United States and the United Kingdom. As retailers continue to partner with BNPL programs, such as Apple’s partnership with PayBright—Other financial companies, such as banks, enter the game.

To take for example CIBC, which launched the Rhythm will appear on its credit cards in 2019. Rhythm allows cardholders to spread payments over purchases over $ 100 through the periods of 6, 12 Where 24 monthss at lower interest rates than the bank normally charges on overdue balances on the rest of their card. (Using Pace It costs 5.99%, 6.99%, and 7.99% for each period, respectively). Cardholders eligible for the program need only use their banking app to select the purchase they want to use the feature on in their banking application, and their available credit balance is not affected. Scotiabank is also taking action, with its SelectPay program, who works similar to Pace It, but charges a monthly fee instead of interest. MBNA, American Express and Triangular credit cards all now offer similar functionality on their cards.

The concept may not seem so different from the layaway programs of yesteryear, offered in department stores or payment plans offered on big-ticket items like automobiles and furniture. (Layaway was a retail financing tool introduced during the Great Depression, but it quickly stopped in the ’80s and’ 90s when credit cards became more massive.) The main difference between layaways and BNPL? You can use BNPL services for purchases under $ 100, can you use them online and they are becoming more and more ubiquitous.

So, is it wise to buy this parka full price now and pay for it later? Here’s what you need to know before signing up for the installment plan trend.

How do buy now, pay later plans work?

Think of it as an “upside down layaway”. Rather than making payments over time and eventually gaining possession of the item, you get it now and continue to make payments thereafter. Usually, once you register with a third party BNPL, you make your first payment, your item is dispatched, and you make the rest of the payments according to the agreed schedule.

The service you can choose depends on where you shop, as BNPL partners directly with the merchant. But be sure to read the fine print, as each company’s terms differ slightly. Afterpay, for example, has no interest or late fees, but limits how much you can spend up front, gradually increasing your limit as you prove your reliability. Other services charge interest (usually at a low rate) and some charge late payment fees.

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