But here’s the truth: BNPL isn’t just a checkout button; it’s a loan. A short-term one, sure—but still a loan. And like any type of credit, it comes with rules, risks, and can have ripple effects on your financial health.
Let’s dive into what BNPL really is, how it works, where it can help, and when it can hurt.
A quick history lesson
The idea of BNPL isn’t exactly new. Back in the 1960s, layaway plans let people pay for items in installments, but they didn’t get the item until the last payment cleared. BNPL flips that on its head: you get the item now, and promise to pay later.
The rise of e-commerce and the desire for instant gratification made BNPL a perfect fit. Klarna, Afterpay, and Affirm turned e-commerce from an in-store option to a digital default. Now, you can create payment plans for everything from a $50 sweater to a $5,000 vacation in seconds.
How BNPL works
Not all BNPL plans are created equal, but there are two flavours:
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Short-term, no-interest plans
- Typically four payments split over six to eight weeks.
- Payments are automatically pulled from your debit or credit card.
- When paid on time, it’s essentially a zero-cost loan.
- Miss a payment, and pay late fees, anywhere from $5 to $30.
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Medium to longer-term installment loans
- Payments stretched over several months (sometimes up to two years).
- Interest may apply, often at rates similar to credit cards.
- Usually involves a credit check and shows up on your credit report, which could harm your credit score if you have too many hard inquiries done in a short period of time.
The “In 4 payments” plans are the most common, but many shoppers don’t realize it’s just one version of BNPL.
Why people love BNPL
BNPL’s appeal and perks aren’t hard to spot.
- Affordability – $200 looks a lot less when you only see $50 at checkout.
- Instant approval – No drawn-out application or waiting for approval. Just click, and you’re approved in seconds.
- Budget smoothing – Syncing smaller payments with your paycheque can feel easier than dropping a big amount at once.
- No interest – Many BNPL plans don’t charge interest—as long as you never miss a payment.
For many Canadians, BNPL feels like getting possession of something without needing to pay upfront.
The hidden risks
Here’s the flip side of BNPL and why it’s not “free” money.
- Overbuying is real
Splitting payments tricks your brain into thinking something is more affordable than it is. A $200 jacket seems more accessible at $50. That “mental discount” often leads to overspending. It’s easy to stack three or four BNPL purchases at once—until your calendar is full of overlapping due dates. Miss one? That’s a ding on your account. - Debt creep and the late fees and penalties that come with it
BNPL providers make money when you slip up. Even small late fees across multiple plans can snowball. Because BNPL seems different from other types of credit, people underestimate how much they ultimately owe. But four $50 payments across three different stores? That’s $600 in obligations—whether you remember it or not. - High-interest long-term loans
Choose your terms wisely. When you opt for a longer payment plan, you may end up paying interest on it, which could be as high as a credit card. But when you select a shorter term, like four installments, you may not pay any interest.
Where you'll see BNPL
Quick answer: Almost everywhere. But these are the popular ways to buy with BNPL. If you’ve shopped online recently, you’ve likely seen upwards of four options for BNPL providers pop up at checkout.
- Retail – Clothing, electronics, beauty products
- Travel – Flights, hotels, vacation packages
- Entertainment – Concert tickets, sports events
- Furniture and appliances – Big-ticket household buys
- Everyday expenses – Some stores even let you split the groceries bill.
How BNPL affects your credit history
This is where things get murky. Different providers handle credit reporting differently:
- Soft checks versus hard checks: Some BNPL apps run only a soft credit check (no impact on your credit score). Others do a hard inquiry, which can temporarily lower your score. So if you do some online shopping and later apply for a mortgage, car loan, job and more, it may not present your best credit profile.
- On-time payments: Most BNPL providers don’t report positive financial behaviour. It’s like empty calories, but with credit. Paying on time usually won’t help your credit score.
- Late payments: Some BNPL providers report late and missed payments to credit bureaus. Others send delinquent accounts to collections agencies, which absolutely hurts your credit score.
- Medium to longer-term loans: Defaulted BNPL accounts often show up on your credit report like any other loan would. It can help or hurt your rating depending on how you manage them.
In short: BNPL usually won’t build your credit, but it can damage it.
Smart tips for using BNPL
BNPL isn’t evil—it just requires discipline. Here’s how to use it without sinking your budget:
- Limit yourself to one plan at a time. Any more, and it’s too easy to lose track.
- Treat BNPL like a bill. Set calendar reminders or autopay.
- Only use it for planned purchases. No impulse buying. Don’t BNPL a pair of jeans on a whim.
- Watch out for interest. If a plan charges interest, compare the rate to that of your credit card. It might be cheaper to charge it.
- Use credit to build credit. If your main goal is boosting your credit score, BNPL isn’t the tool—credit cards and credit-building products are better.
BNPL can be a convenient way to spread out a total cost without interest, but it’s not a financial hack. And it’s definitely not “free” money. At best, it’s a short-term tool for managing cash flow. At its worst, it’s a fast track to overspending, late fees, and credit history dings.
So, the next time you see that tempting “In 4 payments” button, pause. Ask yourself: Is this helping me budget or is future-me going to regret this?
