Picture this: you?ve been in Canada for about three months, still looking for work, and are living on your savings from back home, when you walk past a shop displaying a giant TV screen that you really, really want to buy. You can?t afford it, but in the corner of the display is a large, bright yellow sticker with four words: buy now, pay later.

That sticker makes it sound like everything will magically work itself out in the future. Truth be told, entering a ?buy now, pay later? - or BNPL - scheme is one of the biggest mistakes you could make when you first arrive.

What is ?buy now, pay later??

?Buy now, pay later? is a scheme that allows you to buy an item immediately, and then pay for it over time, or after a certain duration has passed (such as six months or a year). It is often used for high-value items, such as electronics, furniture, or even flight tickets. 

It encourages you to overspend, splurge, or buy on an impulse

The disadvantage of BNPL is that it encourages you to spend money you do not have on things you might not need immediately. You might, for example, be sorely tempted to buy that TV, but that means not being able to pay your bills this month.

BNPL schemes create a false illusion that a year from now, you?ll be in a better financial situation than you are right now. While we?re all rooting for that to happen, there is the possibility that you could be worse off than you currently are: you could be out of a job, you might have unforeseen expenses, or a big life decision that costs money. 

At that time, being saddled with additional debt because you?ve signed up for BNPL schemes is surely something you would not want.

It damages your credit score and the fees add up

Making your BNPL payments on time won?t increase your credit score - but not paying them certainly will! 

Most BNPL schemes are tied to your bank account, and let?s not forget the late fees, either: BNPL companies will either charge you a percentage of the money owed, or a flat amount, which would only impact your savings further! Bear in mind that not all BNPL schemes are interest free, forcing you to pay more for your purchases in the long-run.

This advice from Stanford Business puts it best: ?If BNPL borrowers do not make the payments on time, they can incur late charges, overdraft fees, and interest payments. If they overuse BNPL, they may postpone other payments, incurring higher interest on credit cards and other kinds of loans.?

At Finanzo, we provide guidance on how to manage your money and budget effectively so that you do not fall into potential BNPL pitfalls. Click here to find out more.

Providing newcomers to Canada the tools to manage their money and budget effectively is an issue we take very seriously at Finanzo. Click here to find out more.

Budgeting effectively and managing money is an essential skill that we believe every newcomer to Canada needs to have. Click here to find out more.

???????????It?s harder to get a refund

When you buy something on a credit card, it is easier to call your bank or vendor and ask for a refund. In the case of a BNPL program, you might not be able to do that: most sellers are very keen to make a sale, and unless you?re sold a defective piece, they?re not going to be very keen to give you a refund.

In this case, even if you do approach a seller for a refund, it might be completely up to them. There is also the possibility that they will accept a return of the purchase, but might not give you back a full refund, ultimately landing you a net loss.

How do you get out of a BNPL plan if you?ve already committed to one?

If you are already part of a BNPL scheme, pay it off as soon as you can. Keep an eye on your monthly payment dates, and make sure you don?t miss them! Alternatively, if you need to pay a lump sum after a certain date, keep enough money in your bank account for that eventual payment. If possible, ask your seller whether you can complete your payment(s) sooner.

Ultimately, the onus of entering a BNPL scheme is on you, the customer. This report on BNPL schemes, drafted for the Government of Canada, asks customers to ?learn about the products and the consequences of using them before making a commitment, compare the various products on the market as well as the related protections, and find out about possible remedies in the event of a problem.?

When can you use a BNPL plan?

People have been known to make purchases that are absolutely essential purchases on a BNPL scheme, in the confidence that they do not have much of a shortfall to make up in order to honour their payments, if they already have enough money, or if they know their source of income is not under threat for the foreseeable future.

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If you are a newcomer, it is possible that you might buy flight tickets to visit family back home on a BNPL scheme. Any sort of emergency that leaves you with no other option - such as medical costs - might also force you to enter one. 

Either way, make sure you pay it back on time, know how much you need to keep aside, and be aware of what you?re getting into!

Would you like to learn how to budget effectively and manage your money so that you do not fall into potential BNPL pitfalls?  Click here to find out more.

Would you like to gain the tools to budget effectively and manage your money, as a newcomer to Canada? Click here to find out more.

Interested in learning how to budget effectively and manage your money? Click here to find out more about our courses at Finanzo.