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Buy Now, Pay Later

Your guide to Buy Now, Pay Later (BNPL) installment plans in Canada

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Author: Leanne Armstrong
Author: Karen Stevens

By Leanne Armstrong & Karen Stevens

🗓️

Updated: April 26, 2024

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What happens when you need to make a major purchase—like replacing your old computer, for example—but you don't have the cash to pay upfront? You could use a traditional borrowing method, like a credit card or line of credit. Or, you could opt for the convenience of a Buy Now, Pay Later (BNPL) plan.

Depending on the type of BNPL plan you choose, you can typically split up your purchase into smaller installment payments. Even better, many BNPL plans come with no interest charges (so long as you meet your repayment requirements).

Buy now, pay later can be an affordable way to spread out the cost of large or unexpected purchases. But before you commit to installment payments, use this guide to help determine if BNPL is a good fit for you.

What is buy now, pay later?

Buy now, pay later is exactly what it sounds like: a way for you to make a purchase and take it home today, but pay for it over a number of weeks or months.

BNPL plans are sort of like using your credit card to buy something and then pay for it little by little. But unlike a credit card balance with a high interest rate, buy now, pay later plans are short-term loans you pay off by a specific due date—usually with low or no interest.

BNPL services in Canada are experiencing significant growth, as indicated by a study conducted by the Canadian government. This means that you can anticipate a wider range of companies offering programs that allow you to divide the cost of specific purchases into multiple installment payments.

How does buy now, pay later work?

Most BNPL programs have an online catalogue of participating stores where you choose your product, choose how you want to pay (manual or automatic repayments; by credit or debit), and commit to the program’s time frames for repayments. Some programs will run a soft credit check on you before setting you up with your instalment plan.

You might also come across an option to use BNPL while you’re online shopping. Usually, you’ll see the BNPL company’s logo at checkout, where you select it as your payment option. You might see something like “Pay with 4 interest-free payments of $49.99 using Sezzle,” depending on the BNPL company associated with the site.

Once you make your purchase and commit to a payment plan, you’ll get a reminder close to the repayment date. If you pay on time, you won’t be charged any additional interest. However, you may be billed for late/delayed payments, to which most companies add a fee/interest charge.

How buy now, pay later affects your credit score

Because BNPL plans allow you to finance your purchase with credit, some providers will run a soft credit check on you before setting up your installment plan.

But the good news, according to Equifax—one of Canada’s consumer credit monitoring services—is that soft inquiries don’t affect your credit score.

Poor credit behaviour, on the other hand, like making your BNPL payments late (or not paying at all), could hurt your credit rating.

Pros of buy now, pay later installment plans

Buying now and paying later through installments can be a great way to purchase what you need when you don’t have the money to pay for it all at once.

Spreading installment payments over time can also make it easier to manage your budget. BNPL plans usually let you take advantage of low (or even 0%) interest rates, so long as you make your repayments on time.

Cons of buy now, pay later installment plans

Despite their convenience, there are some things you should consider before getting a buy now, pay later plan.

If you miss or make late payments, for example:

  • You may have to pay additional fees and higher interest
  • Your installment plan could be cancelled
  • You might get barred from using a specific BNPL program
  • Your credit score could be damaged

Because installment plans are easy to use, they can also tempt you to spend more than you can afford by buying things you don’t need.

Types of buy now, pay later plans in Canada

Buy now, pay later plans are available through many physical and online stores, banks, credit card companies and direct providers in Canada. Some let you defer your entire purchase amount to a later date. But most involve a series of equal installment payments.

For example, a BNPL program might use:

  • Pre-authorized credit card charges
  • Pre-authorized debits
  • Personal or retail credit card installment payments
  • Personal loan payments

Regarding BNPL direct provider apps, you have your choice of several almost identical plans—all vying for your attention in a highly competitive marketplace.

Here’s a brief comparison:

  • Some buy now, pay later companies may choose to perform a soft credit check, while others may not
  • Most will offer variations on a six-week, four-installment plan, but some will provide monthly payment options that function more like short-term loans
  • Different plans may charge different interest rates, late payment fees and penalties for missed payments

You should also know that some BNPL providers charge administration fees to set up your plan and processing fees when you pay. So be sure to read the fine print in your agreement.

Types of buy now, pay later plans

You have your choice of several almost identical plans, all vying for your attention in a tightly competitive marketplace. Some companies, such as Sezzle, may choose to perform a soft credit check, while other companies, such as Afterpay, will never check your credit.

Each program charges different interest rates, and most will offer variations on a six-week, four-instalment plan. Although some companies, such as PayBright, provide options that function more like a short-term loan.

Late payment fees and penalties for missed payments vary. Some programs charge administration fees to set up the plan and processing fees when you make a payment, so make sure you read the fine print carefully.

Types of buy now, pay later plans in Canada

Buy now, pay later plans are available through many physical and online stores, banks, credit card companies and direct providers in Canada. Some let you defer your entire purchase amount to a later date. But most involve a series of equal installment payments.

For example, a BNPL program might use:

  • Pre-authorized credit card charges
  • Pre-authorized debits
  • Personal or retail credit card installment payments
  • Personal loan payments

Regarding BNPL direct provider apps, you have your choice of several almost identical plans—all vying for your attention in a highly competitive marketplace.

Here’s a brief comparison:

  • Some buy now, pay later companies may choose to perform a soft credit check, while others may not
  • Most will offer variations on a six-week, four-installment plan, but some will provide monthly payment options that function more like short-term loans
  • Different plans may charge different interest rates, late payment fees and penalties for missed payments

You should also know that some BNPL providers charge administration fees to set up your plan and processing fees when you pay. So be sure to read the fine print in your agreement.

Leading buy now, pay later websites in Canada

Canada has lots of options when it comes to BNPL. Check out the top five below:

Afterpay

Australian Fintech company, Afterpay, has expanded to operate internationally, including in Canada and the U.S. To use AfterPay, you’ll first have to download the app and connect your credit or debit card. When you make a purchase, you’ll make the first of four instalments. Then you have six interest-free weeks to pay the remaining three. Afterpay will send you reminders for your payments, although you can also check your payment schedule in the Afterpay app.

If you miss a payment, your account will be paused so that you can’t make any more purchases. Once you miss a payment, you will be charged a late fee, although that fee will never exceed 25% of the initial value of the purchase.

Sezzle

Like Afterpay, Sezzle offers a four-part instalment plan over six weeks without charging any interest. The American company’s catalogue includes more than 34,000 stores, so chances are you’ll find it useful if you want to BNPL.

Before you make a purchase, you’ll have to qualify: the company will do a soft credit check and take into account your purchase history with Sezzle. The size of your first payment may vary, but it’s usually around 25% of the total purchase price.

Fees come into play if your payment fails or you need to change your payment dates two times or more per order. On the plus side, Sezzle can help you build your credit if you sign up for Sezzle Up, which allows the company to report your payment history to credit bureaus.

Klarna

Hailing from Sweden, Klarna has a BNPL app in Canada and provides other online financial services internationally. In Canada, the app offers a typical BNPL four-instalment payment plan. With Klarna, the payments are automatically applied to your provided credit/debit card every two weeks. While you can pay off the entire balance early or in one go, you won’t be able to change the timing of your four payments.

Klarna doesn’t charge any interest on your purchases, and you won’t be charged a late fee if you miss a payment. However, if you don’t pay up, you risk being barred from using this app in the future.

Affirm

This San Francisco-based company is popular in the U.S., where it’s partnered with Shopify. In Canada, you might not see its name come up as much, but the offering is still competitive. With Affirm, you have your choice of payment schedules, which can range from three months to a year. Interest charges can range from 0% to 30%, depending on the purchase and your eligibility, and you may have to provide a down payment.

You’ll also have to pre-qualify with a soft credit check before you get a loan. Depending on the option you use, failure to repay your loan can negatively impact your credit score, so be careful. That being said, Affirm is upfront about its fees and terms, so there shouldn’t be any unpleasant surprises.

Related: How Canadian credit scoring works

Leading buy now, pay later bank providers

Many bank providers, including the Big Five banks, also make it easy to buy now, pay later in Canada: Royal Bank of Canada (RBC), Bank of Nova Scotia (Scotiabank), Bank of Montreal (BMO), Canadian Imperial Bank of Commerce (CIBC) and Toronto-Dominion Bank (TD).

Because this type of BNPL plan is only available to a bank’s credit card members, you won’t have to apply or complete a credit check to use it.

Here are a couple of examples of credit card installment plans.

TD installment plan

If you qualify as a primary TD credit cardholder, you can use TD’s interest-free monthly installment Payment Plan to break up credit card purchases of $100 or more.

To set up a TD Payment Plan, all you have to do is:

  • Sign into your online or mobile credit card banking app
  • Choose the purchase you want to convert to installment payments
  • Select a six, 12 or 18-month plan
  • Review the terms and conditions, and click ‘Accept’

TD lets you have as many as 25 active payment plans at the same time. Just be aware that you’ll pay a 4% to 8% fee (depending on which one you choose) for each plan you set up.

Scotiabank installment plan

You can also turn credit card purchases of $100 or more into interest-free installment payments if you qualify as a primary cardholder of an eligible Scotiabank Visa.

To set up a Scotia SelectPay plan, all you have to do is:

  • Use your card and choose a three, six or 12-month installment plan when you’re shopping online
  • Tap, insert or swipe your card during in-store checkout to choose your plan
  • Sign into your online or mobile credit card banking app to choose a payment plan after you’ve made a purchase

You can easily view your plan details and payments by signing into your mobile or online account. Just be sure to review terms and conditions in advance since Scotiabank SelectPay plans have a fee.

Alternatives to BNPL plans

Buy now, pay later programs are appealing, but they may not be right for everyone. Some shoppers prefer the following alternatives:

  • Balance Transfer Credit Cards: Credit cards are a classic method of borrowing. You buy on credit and pay up when your bill is due each month. If you are unable to pay off your high-interest card each month, you may be able to transfer your balance over to a lower-interest option.
  • Personal Loans: Personal loans can offer attractive interest rates, especially if you have good credit. However, they’re usually more useful for large purchases, such as a new fridge, versus a relatively smaller online shopping purchase.

BNPL FAQs

  • How does the BNPL model work?

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    Instead of paying for a purchase all at once, a BNPL plan lets you make payments in instalments—usually four—over the course of a few weeks or months. The BNPL company may charge you fees or interest for the privilege, so it’s best to read up on the plan you want to use.Instead of paying for a purchase all at once, a BNPL plan lets you make payments in instalments—usually four—over the course of a few weeks or months. The BNPL company may charge you fees or interest for the privilege, so it’s best to read up on the plan you want to use.

  • How does Afterpay make money?

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    Afterpay makes money from the fees it charges merchants, which range from four to six percent. This cost is not passed onto the consumer; however, charges may apply for late payments.

  • Does Buy Now, Pay Later affect credit score?

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    Unless you opt into a specific program that reports to credit bureaus, such as Sezzle Up, or you choose a payment plan that operates like a loan, such as PayBright’s Pay Monthly plan, there will be no impact to your credit score. Most BNPL companies either conduct soft credit checks, or no credit checks at all, which means your credit scores remains unaffected—unless you miss payments, of course.

  • What interest rate does a BNPL loan charge?

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    Most BNPL loans charge a low or 0% promotional interest rate. Depending on the buy now, pay later plan and provider, however, that could change to a much higher rate (sometimes up to 37.99%) if you miss a payment or don’t pay in full by the due date. So be sure to read the agreement terms and conditions carefully.

  • What are the borrowing limits on a BNPL installment plan?

    +

    BNPL borrowing limits depend on your eligibility and the type of installment plan you use. If your credit card offers an installment plan, you can usually borrow up to your credit limit. BNPL direct providers like Klarna, meanwhile, don’t predefine their limits. Your spending amount is approved each time you pay based on your payment history and outstanding balance.

Buy now, play later trends

Some buy now, pay later research shows the market will jump from US $6 billion to more than $38 billion by 2030. And it isn’t hard to see why.

BNPL plans may have gotten a foothold during the pandemic. But the opportunity to spread out purchase costs across convenient, interest-free payments is more welcome than ever in today’s inflated economy.

In the years to come, expect to see more retailers offering buy now, pay later options to shop for everything from clothing and electronics to home furnishings.

The bottom line: Should you use a BNPL plan?

Buy Now, Pay Later is an attractive system. It gets you that expensive laptop you desperately want when you don’t have the money to pay for it. Your debt is interest-free, and there’s no impact on your credit score. Seems too good to be true. And it’s great — but only if you have the money when the bill is due.

Even though issuers say (in very, very fine print) that they take into account financial difficulties, you shouldn’t count on that if you find yourself in a financial jam. Before you use Buy Now, Pay Later, make sure that you will have the funds at a future date to avoid fees, getting barred from using a particular program, or a potentially negative impact on your credit score, depending on which plan you chose.

Related: What affects your credit score?

Leanne Armstrong Contributor

Leanne Armstrong is a HubSpot-certified freelance content writer specializing in personal finance, business and technology. As a former entrepreneur with a background in accounting and social psychology, she writes for a wide range of globally recognized organizations, including Smarter Loans, Forbes and Huffington Post. Her work appears in various publications across Canada and North America.

Karen Stevens Author

Karen Stevens is a personal finance and business writer with experience across industries from travel to tech. She believes personal finance should be accessible to everyone, and is always on the hunt for that next money-saving hack. Karen writes and consults for GreedyRates on all verticals such as taxes, investing, loans and more.

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