As BNPL gains popularity among Canadian shoppers, here are three things you should know about it plus some words of caution.
You may notice that many online retailers (also known as merchants) now allow you to buy goods and services through a buy now, pay later (BNPL) option. Thinking of buying a new electronic device? Clothing? Or how about an airline ticket? Whatever consumer good or service you are thinking of, there’s probably a BNPL option for buying it. Hundreds of retailers (and it’s a growing list) now offer BNPL as a payment option.
BNPL is catching on with consumers too. According to the Financial Consumer Agency of Canada’s (FCAC) recent survey, 34% of Canadians surveyed are familiar with BNPL. And 8% have used at least one BNPL service from September 2019 to March 2021. More recently, the MNP Consumer Debt Index identified BNPL as being the likely method of payment for one in five Canadians in the fall of 2021.
What is BNPL?
BNPL (also known as BNPL loans, financing or services) allows you to make smaller payments to buy goods and services, instead of making one large lump sum payment. Companies with a lending platform offer BNPL as a way for you to buy from participating retailers. When you choose to pay through BNPL at the checkout with a retailer, the BNPL platform will ask for your personal information. The BNPL company then uses the information to prequalify you through a credit check. If approved (which often happens within minutes), you will then purchase the goods under the terms of the BNPL company’s loan agreement.
Sounds easy enough, right? Well, here’s what you should know about BNPL.
1. With BNPL, you sign up for more than just a loan
When using BNPL, you sign up for more than just a loan. There are terms or even a separate service agreement about your rights and responsibilities while using the BNPL company’s platform. You also agree to the company’s privacy agreement or policy. Depending on the company, other policies may apply – for example, buyer and fraud protection policies. As such, review all agreements and policies before buying something through BNPL. That way, you can at least try to understand what you may be getting into.
2. Not all BNPL agreements and policies are the same
Do not assume that all BNPL companies and their agreements and policies are the same. Your rights and responsibilities can vary on matters such as:
- loan terms
- late payment and defaults
- returns, refunds and cancellations
- dispute resolution processes
To illustrate just how different BNPL agreements and policies can be, let’s talk about refunds. One BNPL company takes a hands-off approach with merchant refunds. Their service agreement says refunds are subject to the terms of the merchant and you must contact the merchant directly to request refunds. Some other BNPL companies have a policy of facilitating merchant returns through their platform or app. As such, if you want to make a return, you could report it on the BNPL company’s platform or app. The company would then support you in resolving the issue with the merchant.
3. BNPL loan terms and conditions may depend on the participating retailer or your personal credit profile
Many retailers and BNPL companies will advertise financing plans with 0% APR (zero interest on approved credit) and “easy” terms. Sounds enticing, right? However, retailers may have different financing terms. Some retailers may not even have 0% APR financing available.
As a cautionary tale, I loaded up a shopping cart for fun to test out the BNPL purchase process on a retailer’s website. It didn’t turn out to be so fun when I realized that paying through the BNPL option was around 20% higher than paying through other methods.
It’s also important to watch out for the fine print when making a purchase and on the BNPL company website. The fine print may say that your monthly payment, interest and available loan terms depend on your personal credit profile. You may end up qualifying for a purchase on different terms than family members, friends and other people with a different credit profile.
Words of caution
As regulatory and industry experts point out, the BNPL space is quickly evolving. There are risks though. To name just a few, there are major consumer protection concerns around BNPL borrowing, including consumers taking on too much debt and dispute resolution. Using BNPL to make a one-time purchase may not seem like much. But it can be tempting and easy to fall into a retail spiral. So, you may end with more monthly payments for a variety of goods and services – and consequently, more debt than you expect.
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DISCLAIMER The information in this article was correct at time of publishing. The law may have changed since then. The views expressed in this article are those of the author and do not necessarily reflect the views of LawNow or the Centre for Public Legal Education Alberta.
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