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 B次元官网网址� 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 donB次元官网网址檛 charge fees or interest to shoppers, but experts advise against them because they often encourage consumers to spend beyond their means.
B次元官网网址淭he thing that can really get you in trouble is thinking of it as B次元官网网址榦h $20 here, $60 there is not a big deal,B次元官网网址� but those little purchases can add up really quick,B次元官网网址� said Julia Faletski, a Vancouver-based financial adviser at CI Direct Investing.
B次元官网网址淵ou just donB次元官网网址檛 want to get yourself in this situation where that leather jacket is the thing that sinks your finances.B次元官网网址�
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 companyB次元官网网址檚 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.
AfterPayB次元官网网址檚 offering, she said, is also good for people who donB次元官网网址檛 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 youB次元官网网址檙e considering a plan.
B次元官网网址淵ou 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 thatB次元官网网址檚 something to look out for,B次元官网网址橞次元官网网址� said Chapman.
The last step is to think about what youB次元官网网址檙e getting yourself into.
Buy now, pay later plans can be difficult to understand and carry a mental cost because youB次元官网网址檙e suddenly adding an extra and recurring payment to your monthly budgeting, she said.
The plans can become a bad deal if youB次元官网网址檝e overextended yourself by too much, have no prospect of being able to afford whatever youB次元官网网址檙e buying or havenB次元官网网址檛 looked closely at the terms.
B次元官网网址淢ake sure that you have a really clear idea of what you owe andB次元官网网址ake sure that you abide by the payment schedule because if you fall behind, this is where the penalties really become significant,B次元官网网址� said Faletski.
AfterPayB次元官网网址檚 Nadler said more than 90 per cent of its customers pay on time and those who donB次元官网网址檛 are prevented from purchasing more items.
However, Faletski warned that users of buy now, pay later services who arenB次元官网网址檛 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 itB次元官网网址檚 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 donB次元官网网址檛 ignore the red flags.
B次元官网网址淚f youB次元官网网址檙e in a situation where you only have this small amount of moneyB次元官网网址r if you donB次元官网网址檛 even have any money to pay for this stuffB次元官网网址ou should not.be using these payment plans.B次元官网网址�
Tara Deschamps, The Canadian Press
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