The Real Cost Of A Buy Now Pay Later Service

The Real Cost Of A Buy Now Pay Later Service

Written by Lisa Rennie
Fact-checked by Caitlin Wood
Last Updated April 5, 2022

What if you really want or need a product but your current finances can’t justify the purchase? That’s where a buy now, pay later (BNPL) service might come in handy. Certain products might be a bit over your financial limit, but with a BNPL service, you don’t necessarily have to wait until your bank account has the funds to cover the purchase. Retailers are increasingly offering this type of service to help consumers get over the financial hurdle and encourage more spending, but do these services come with a cost?

Let’s take a closer look at BNPL services to help you decide whether it’s worth it to use.

What Is A Buy Now, Pay Later Service (BNPL)?

Buy now, pay later (BNPL) is a financing service that allows consumers to buy a product without having to pay for it in full. This arrangement is especially helpful when making large purchases of a few hundred dollars or more. 

Several companies offer this type of financing service on purchases made at participating retailers and don’t typically charge any interest. Some credit card companies also offer this service at lower interest rates compared to the typical variable APR charged on balances.

How Does Buy Now, Pay Later Service Work?

While financial companies that offer BNPL services may have their own specific set of terms and conditions, this program generally works as follows:

  • Consumers make a purchase at a participating merchant and choose the buy now, pay later option when they check out.
  • You’ll fill out a quick application with your merchant’s BNPL partner who will provide an instant approval (if eligible).
  • Your first payment will be due right away and is typically 25% of your purchase price.
  • The remaining balance due is repaid in installments, generally with no interest.
  • Installments can be made via cheque, bank transfer, or credit card.

Hidden Risks of Buy Now, Pay Later Services (BNPL)

Being able to pay for an expensive product without having to cover the entire cost upfront is advantageous for consumers who otherwise wouldn’t have the available funds necessary to complete the transaction. That’s the beauty of a BNPL service.

But there are also some drawbacks to consider, including the following:

  • Doesn’t build credit. Making regular and timely payments on a traditional loan allows you to build good credit. But buy now, pay later programs do not apply in terms of credit building. Not only that, but missed payments may actually do the opposite and hurt your credit score if your provider reports missed payments.
  • Interest rates and fees. While many buy now, pay later service providers do not charge any interest, others do, and the rates can be pretty hefty. Further, these programs could also come with other fees, including late payment fees, etc.
  • Overspending. Having an opportunity to make a big purchase without having to come up with the total price may entice consumers to spend beyond their means or encourage them to overspend.
  • No rewards/points. When you use a credit card, you can earn points in most cases to be redeemed at a later date for specific purchases and expenditures. But BNPL services don’t usually come with any of these benefits. 
  • NSF/overdraft fees.  Depending on your repayment arrangement with your service provider, you may have your payments automatically deducted from your account. If you don’t have enough funds in your account when your payment is withdrawn, your BNPL service provider may charge you an overdraft or NSF fee

How To Avoid The Dangers Of Buy Now, Pay Later Services

While there may be some drawbacks to BNPL services, that doesn’t mean you can’t avoid them. Consider the following tips to steer clear of the dangers that may accompany these financial services:

  • Only spend what you can afford. It may be tempting to take advantage of a BNPL service so you don’t have to part with a large sum of money all at once, but make sure you’re being logical and realistic with your choices. Consider your financial situation before committing to paying for a costly expenditure.
  • Set automatic payments. To avoid missing your payments, consider setting up an automatic payment system
  • Find out who the provider is. Every BNPL service provider is different, as are the interest fees that they may or may not charge. Make sure you know which BNPL provider the retailer worked with before choosing buy now, pay later as your payment option.

Types of BNPL Service Providers

There are several resources for BNPL programs available, including the following:



  • 4 payments to pay off a purchase over 6 weeks 
  • No interest
  • Instant approval decision
  • No effect on credit score

Fees may be charged for a payment that doesn’t go through.



PayBright offers 2 different BNPL structures:

Pay in 4: 

  • For smaller purchases
  • 4 bi-weekly payments to pay off a purchase  
  • No interest 
  • No late fees
  • No effect on credit score
  • Automatic payments

Pay Monthly:

  • For larger purchases
  • Monthly payments over 6 to 60 months 
  • No interest on some plans
  • No effect on credit score
  • No late fees
  • Automatic payments

Interest or processing fees may apply depending on the retailer. Interest can range anywhere from 0% to 29.95% APR. Further, some plans may include a monthly processing fee with each payment. 

Learn More


  • 4 initial payments, followed by remaining payments made over the course of 6 weeks
  • No interest
  • No fees 

Fees could be charged for late payments, though Afterpay will work with consumers to help make arrangements in case a payment is missed. 

Learn More

Are There Any Benefits To Buy Now, Pay Later Services? 

There are plenty of reasons why BNPL services may be worth considering:

  • Convenient. Rather than taking out a personal loan to gain access to the funds needed to make a large purchase, BNPL is quick and easy to use. 
  • Makes large purchases affordable. You don’t have to wait until you have enough money to make a large purchase.  
  • No interest. Most BNPL services do not charge interest fees to use their services.
  • Good credit is not (always) required. Depending on the BNPL provider, you may not need a strong credit score to get approved. 
  • Fast approval. You’ll get near-instant approval when you sign up for a BNPL service. 


Can BNPL services hurt my credit?

No, applying for BNPL services to pay for a large purchase has no impact on your credit score. However, your credit score can take a hit if you miss payments. 

What are some alternatives to BNPL?

You can always use your credit card to put the purchase on credit, which means the full amount for the purchase is not required right away.

When is BNPL a bad idea?

If your credit cards are maxed out, you don’t have the financial resources to pay the BNPL off when it’s due, or you don’t have control over your spending, then a BNPL may not be right for you.

Final Thoughts

If you’re responsible with your finances, a BNPL service can be a great way to make a large purchase that you might not have the available funds to cover right away. But if your debt load is already sky-high and your finances don’t support additional bill payments, it might be best to wait until you have enough money saved up to cover the purchase in full. This way, you can avoid any financial traps that can be tough to get out of.

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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