The truth about “buy now, pay later” deals

What is a “buy now, pay later” plan?

“Make 36 equal payments,” “Don’t pay a penny until 2021,” “0% interest for 6 months.” You’ve seen the ads. These days, stores that sell furniture, electronics and appliances are all about “buy now, pay later” deals.

But what does that mean? In general, these payment plans let you stagger the payments for your purchase over a certain amount of time. Or they let you make the full payment at a later date.

To take advantage of this type of payment, you usually need to sign up for a store credit card or take out a loan from a financial institution associated with the store. Of course, you have to pay interest on credit cards and loans. You’ll usually be offered a promotional rate. This can be as low as 0%. Sounds tempting? Be careful. Things can get out of hand quickly if you don’t pay on time.

Types of “buy now, pay later” plans

There are different types of “buy now, pay later” payment plans. The terms are different for each one. You’ll find all the details in the contract you have to sign. It’s worth reading the fine print. Ask any questions you may have.

Go ahead and ask someone you know to help you understand the contract. You can always take a few days to decide if the contract works for you. After all, it’s your money. There shouldn’t be any pressure to buy.

Equal payment plan

Rather than paying for your television all at once when you buy it, you’ll make smaller payments over a period of time (once a month, for example). If you pay on time every month, no problem. But if you miss a payment, you’ll owe twice as much the next month. And you’ll have to pay steep interest on your late payments.

Deferred payment plan

With these offers, you can pay for your television whenever you want, until a certain date (for example up to a year after you bought it). All will be well as long as you pay the amount you owe by the due date. Once your time is up, however, they’ll start charging interest. And rates can be as high as 29%! That’s essentially a third of your purchase and a lot of money to lose.

Interest-free grace period

This is like a credit card purchase, where you pay 0% interest for a certain period of time. Every month, you have to make a payment of about 5% of the amount you owe. Once your grace period ends, you need to pay off the rest of your purchase. If you don’t? The interest you “saved” during the grace period is added to your bill.

The advantages of a “buy now, pay later” plan

Can “buy now, pay later” offers be useful? Sometimes, under certain conditions.

Anyone can end up in a situation where money’s tight but you need to make a big purchase. No one can predict when a fridge might break or a dryer might stop working.

Having the option to pay off an item over a period of time can be very helpful. Especially if the interest rate is low or 0%. And especially if you’re able to pay it off on time (or keep up with your payments).

But keep in mind: “Buy now, pay later” offers are far from perfect. Buying on credit leaves you open to a lot of risk.

Downsides of a “buy now, pay later” plan

Before agreeing to make 36 equal payments (or any similar offer), there are a few things to consider.

It could hurt your credit score

Before you can “buy now, pay later,” you usually have to sign up for a credit card. If you already have several cards, adding another one can negatively impact your credit score. Not to mention the consequences for your credit if you don’t pay on time.

It can put you in debt

Of course, it does sound great to pay later for something you can use now. The problem is that it encourages you to buy things you can’t afford. And this is unfortunately a recipe for debt troubles. Especially when you decide to pay later for more than one thing, and then have to pay them off all at once.

There may be additional fees

With “buy now, pay later” offers, it isn’t just the interest rate that can catch you off guard. You sometimes also have to pay administrative fees, delivery fees or an annual credit card fee.

Interest rates can quickly skyrocket

Being just one day late on a payment could increase the interest rate for a financing plan from 0% to 25%! From there, things can really get out of hand. On top of that, nearly 70% of people who go with a financing plan end up paying interest (French only). The takeaway: “Buy now, pay later” offers are a double-edged sword. It’s preferable you give it some thought first.