Buy Now, Pay Later: A Double-Edged Sword

2024-02-08  3 minute read

Augustine Kwok


Consumer Proposal

The year of the dragon is a concept from the Chinese zodiac which assigns an animal sign to each year in a 12-year cycle. The dragon is the fifth animal sign and is considered to be the most powerful and auspicious one. People born in the year of the dragon are said to be confident, intelligent, ambitious, and adventurous!

Buy now, pay later (BNPL) is a type of short-term financing that allows consumers to make purchases and pay for them over time in installments. These purchasing plans are also called point-of-sale (POS) installment loans or retail financing plans and are offered by various financial service providers such as banks, fintech companies, or financing companies.

BNPL can appeal to the dragon’s (consumer’s) confidence and ambition, as it can help them buy things they need or want without paying the full price upfront. However, BNPL can also tempt the dragon’s impulsiveness and adventurousness, as it comes with risks, such as overspending or accumulating debt and damaging their credit score. Therefore, it is important to understand the terms and conditions of the BNPL plan before signing up for it.

Red background with Chinese New Year symbols and a cartoon figure of a red dragon

Advantages of BNPL

One advantage of BNPL is that it can help consumers spread the costs of their purchases over time, making it easier to manage their budget. BNPL can offer interest-free or low-interest financing options that can reduce the upfront payment and increase the affordability of items. 

For example, if a consumer wants to buy a laptop that costs $1,000, they can use a BNPL plan that allows them to pay $250 a month for 4 months, instead of paying the full amount at once. This way, they can avoid using their savings or credit cards, and still get the laptop they need.

If you have a solid budget in place, BNPL purchases allow you to take advantage of your long-term planning by allocating portions of a more expensive item to multiple upcoming budget months. If you don’t have a solid budget yet, check out MNP’s free, downloadable budget tracker spreadsheet.

Disadvantages of BNPL

BNPL can also have some drawbacks, one of which is encouraging consumers to overspend and borrow more than they can afford, leading to debt and financial stress. BNPL can create a false sense of affordability and tempt consumers to buy more items — or more expensive items — than they need or want. For example, if a consumer sees a BNPL option on an online store, they may be tempted to add more items to their cards, or choose a more expensive item, thinking that they can pay later.

Another disadvantage to BNPL is that it can have negative consequences for consumers’ credit scores, especially if they miss or make late payments. BNPL can charge late fees, deferred interest, or other penalties if consumers fail to pay on time or in full, which can increase the cost and duration of the debt. Also, if a consumer misses a payment that is reported to the credit bureaus, their credit score may drop, making it harder for them to access other forms of credit in the future.

Worst case scenario, BNPL purchases that lead to more debt can put extra strain on finances. If someone is heading in the direction of filing for Bankruptcy or a Consumer Proposal, BNPL purchases can continue to damage their financial health.

The double-edged sword

Ultimately, BNPL does have some attractive benefits like making more expensive purchases more budget-friendly — but it also comes with significant risks such as causing consumers to borrow more than they can afford, leading to debt and financial stress. This financial overreaching can have negative consequences for consumers’ credit scores, especially if they miss or make late payments.

If you find yourself in a position where BNPL purchases have negatively affected your credit score or added to your debt, you can get guidance by consulting with MNP Ltd and seek advice through a consultation from a Licensed Insolvency Trustee. Experienced Trustees will present options on what can be done to address that situation, whether it might budgeting help, credit counselling, debt consolidation, or in more serious cases, Consumer proposal or personal Bankruptcy. The consultation is free and confidential.

To avoid the risks associated with BNPL, consumers who use or consider it as a purchasing option should compare different BNPL plans, read the terms and conditions carefully, set a budget and stick to it, and pay off the debt as soon as possible. BNPL is a double-edged sword that can help or hurt consumers depending on how they use it.

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