What holiday shoppers need to know about ‘buy now, pay later’ plans

Breaking down the dangers of 'buy now, pay later' plans. Pat Foran reports.

As many people cross items off their holiday shopping list, they may be looking to stretch their dollar by taking part in “buy now, pay later” plans.

They let shoppers break payments into monthly installments to pay for the item over four months or more.

The plans can be convenient, but if you sign up for too many of them at once, it could quickly snowball into unwanted debt and even hurt your credit score.

• Tips to help manage your buy now, pay later loans

Pamela Reyes said for her, it seemed like a good way to stretch her budget.

“A big portion of it was just convenience, being able to split the payments, so I wouldn’t have to take big hits to my bank account,” Reyes told CTV News.

But, it’s very easy to lose track of these types of loans, especially when taking out more than one at a time.

“The smaller ones took me off guard because I forgot about them. If I’d been in a more of a paycheque-to-paycheque situation, that could have been kind of disastrous,” said Reyes.

Consumer Reports found that buy now, pay later options can lead to overspending and sometimes debt, and Tina Filion with the Credit Counselling Society agrees.

“With the cost of living high these days, these little microloans might seem tempting to turn to, especially if there is not much room in your budget,” said Filion.

Missed payments can trigger higher-than-expected fees or interest and may even show up on your credit report.

“Some ‘buy now, pay later’ lenders report missed or late payments to the credit bureaus, which could hurt your credit score just like missing a credit card bill. That’s why it’s so important to stay on top of the loan payments,” said Lisa Gill with Consumer Reports.

• New survey finds nearly half of Canadians are unsure how credit scores are calculated

When using these services, choose loans carefully and check if you will be charged fees or interest.

“Avoid taking multiple loans out at once, and if you do, try to stick with the same company so you’re not managing payments from different places,” said Gill.

Setting reminders for due date could help to avoid missed payments or overdraft fees.

“That’s a dangerous trend (overusing buy now, pay later plans) that can really get people in a difficult situation, and we are hoping to see a reduction and more awareness around these debt types,” said Filion.

With buy now, pay later plans, refunds can take longer to process, and shoppers may need to keep making payments until the issue is resolved.

As for Reyes, she has decided to be more careful before using the plans.

“If you could not afford to make the payment in one go, I would not even consider ‘buy now, pay later,’” she said.