Buy now, pay later (BNPL) splits a purchase into instalments, often interest-free if every payment is made on time. The Financial Consumer Agency of Canada (FCAC) is clear about what it is: “With this plan, you’re financing your purchase with credit.” This page covers how the plans work in Canada, who provides them, what they cost when something goes wrong, how they can affect your credit and how they compare with paying by card. It is one of our credit card basics guides.
How BNPL plans work
A BNPL purchase usually involves two agreements: one with the retailer for the purchase, and one with a financial service provider that finances it. FCAC lists the providers as “financial institutions, including banks, credit unions and caisses populaires financing companies money services businesses (MSB), including financial technology (fintech) companies.” Well-known names in Canada include Afterpay, Klarna, Affirm and Sezzle; offerings and terms change, so the provider’s own terms are the place to check.
FCAC describes two types of plan:
- Equal payment plans, where you make regular, equal payments until the balance is paid. Pay-in-four plans are the common version.
- Deferred payment plans, where “you must pay the balance you owe by the due date,” with no set payments in between.
The payments are collected in one of three ways: pre-authorized debits from your bank account, automatic charges to your credit card, or a plan set up on a credit card itself. FCAC notes the first payment is usually on the purchase date.
BNPL on a credit card
Some card issuers let you convert a qualifying purchase into instalments; FCAC says “Credit card providers may call this option “equal installment payments.”” There’s usually a minimum purchase amount, and you request it through the issuer. Retail credit cards often offer BNPL too, with a promotional rate on the plan. Going the other way, “Some credit card providers don’t allow buy now, pay later transactions” charged to their cards.
What it costs
FCAC: a promotional rate “may be as low as 0% interest. However, if you don’t make your payments on time, you’ll usually need to pay fees.” The costs to watch for:
| Cost | When it applies |
|---|---|
| Administration fee | “Some companies charge an administration fee to set up the plan,” usually paid at purchase |
| Missed payment fee | When a payment fails, from the provider |
| NSF fee | From your bank, if a pre-authorized debit bounces |
| Processing fee | Some providers charge one on each payment made by credit card |
| Higher interest | On retail cards, a missed payment can end the promotional rate: FCAC’s example is a rate going “from 0% to 35% if you miss the minimum payment due date,” with interest charged on either “the full amount from the date of purchase” or “the unpaid balance” depending on the plan |
FCAC’s summary of the downside: “It may be an expensive way to borrow money if you miss a payment.”
How BNPL can affect your credit
Because BNPL is credit, “The financial service provider may run a credit check before approving your application.” Whether the plan and its payments then appear on your credit report depends on the provider: some report to a bureau and some don’t, and their terms say which. FCAC warns: “You might put your credit at risk.” A missed payment that a provider reports, or a debt sent to a collection agency, is treated like any other on your report; what happens if you miss a payment explains how late payments affect a credit file. Whether an application uses a soft credit check or a hard one also depends on the provider and the plan.
Lenders reviewing a mortgage or loan application may count active BNPL plans as debts when they look at what you already owe.
BNPL compared with paying by credit card
| BNPL (pay in instalments) | Credit card paid in full | Credit card, balance carried | |
|---|---|---|---|
| Interest | Often 0% if every payment is on time | None, within the grace period | The card’s purchase rate |
| Fees | Possible set-up, missed-payment and processing fees | Any annual fee | Any annual fee, plus interest |
| Rewards and protection | Usually none from the plan | The card’s rewards and coverage | The same |
| Credit reporting | Depends on the provider | Reported monthly | Reported monthly |
A card paid in full costs nothing in interest for the same few weeks a pay-in-four plan covers, and keeps the card’s protections. How credit card interest works explains the grace period. The risk with either is the same: committing future pay to a purchase. FCAC lists among the cons that BNPL “might encourage you to spend beyond your means or make impulsive purchases.”
If something goes wrong
FCAC: “If you have a complaint about your buy now, pay later plan, contact the plan provider.” Depending on the agreement, the retailer may also need to be involved, and provincial consumer affairs offices handle complaints about retailers. For a problem with a purchase paid by credit card, the card’s own dispute process applies; see how to dispute a credit card charge.
Source: FCAC, Buy now, pay later plans.