"Buy now, pay later" plans are a consumer’s greatest temptation. Should you steer clear of this type of credit? Not necessarily. Here are the most common perils.
Are you aware of the perils of "buy now, pay later"? This financing option, typically offered by furniture and appliance stores, has a downside. That doesn’t mean it should be avoided altogether, because this type of credit can sometimes have its advantages. However, caution is the name of the game.
Is "buy now, pay later" an advantage?
Yes, these tempting offers can be advantageous. Has your fridge has given up the ghost? By letting you pay later, the appliance store is giving you the chance to purchase a new fridge before you’ve managed to save the amount necessary to make this unexpected purchase. Given that a fridge is essential, rather than a luxury, it would be a real hassle to have to wait three months to replace it.
- However, if you’re not sure that you’ll be able to pay for it on the due date, then you’d be much better off buying a used fridge, because the fees and interest rates are generally high.
- Interest rates are one of the main "buy now, pay later" perils. You should also avoid using this type of financing for items you don’t really need or for things you can wait for until you’ve saved enough money.
The main perils of "buy now, pay later"
To avoid pitfalls, read the contract carefully (including the fine print) before signing. Then ask the following questions:
- Who will receive your payments? Stores often do business with financial institutions, so it’s possible that the seller will ask you to sign two contracts, one with the store and one with the financial institution that will take the payments.
- What’s the total amount payable, including interest?
- What’s the payment method? For example, in a year’s time, will you have to pay the entire sum all at once or can you pay in installments? If it’s a lump-sum payment, put some money aside on a regular basis because lots of things can happen in a year.
- What are the consequences of a late payment? Will you have to pay an exorbitant penalty? If you’re late, you might be obliged to pay interest calculated from the date of purchase, even though your financing was initially offered at zero per cent. You may also have to return the item you’ve purchased. In fact, in some contracts, the store remains the owner of the article until it has been paid for, either partially or in full.
- Do some conditions apply? For example, you could buy a TV without payment or interest for a year and yet be charged interest on the taxes if they’re not paid at the time of purchase.
Beware of debt
The Financial Consumer Agency of Canada says you should steer clear of "buy now, pay later" plans if you’re in financial difficulty. What's more, you could dig yourself into an even deeper hole because of the high end-cost of this type of credit.
