Buy Now, Pay Later vs. Layaway Plans in Canada

It seems that shopping nowadays is becoming more accessible than before, with numerous ways of paying available for shoppers, allowing them to handle bigger transactions without harming their monthly or bi-weekly budget, whether done online or in stores.

Beyond the traditional methods, consumers can now spread out their purchase into multiple payments with no additional fees, with the Buy now, pay later (BNPL) option – as long as you pay on time-. One cannot but wonder, can the BNPL replace the traditional Layaway? These point-of-sale financing methods have many common elements, but the difference between the two can’t go unnoticed!

Layaway is a payment plan arrangement designed for people with axed-out credit cards or individuals who do not have enough savings or credit.

Once you find the desired item, a down payment is made to put it on hold, and you agree to pay in full within a specific period, knowing that you will get the item once it is entirely paid.

Shops and stores offering Layaway plans may charge a fee to use them, but no interest is involved because it is not a loan; shoppers aren’t borrowing money to use the plan, but only make payments on the items the store is holding for them.

Most reserve plans work similarly:

• You identify and select the item(s) you want to buy,
• Require a deposit for the total cost,
• Make payments over time,
• Once the final payment is made, you will be handed the purchased item

Why can’t you get it now and continue making payments later? You can, with BNPL!

The Buy Now, Pay Later plan is a spin on the layaway plan. It’s like “layaway in reverse”; instead of making payments over time and eventually getting hold of the item, you will go back home with it and continue making payments afterward.

It is a short-term financing option that essentially allows consumers to finance a purchase with credit; you can buy something in full of the possibility of splitting payments into several installment payments over time.

Canada has many BNPL options that we have gone through in a previous article, and the movement is now reaching more and more individuals with programs offered by companies like Afterpay, Sezzle, and PayBright.

The shoppers will obtain their item right after making their first payment and then will pay a certain amount each time going forward. Nevertheless, the financial world always has fine print; you may have to endure interest rates and late fees, which differ depending on the BNPL solution provider. Make sure to know the consequences in case you fall behind!

There are two types of buy now, pay later options to remember:

• The equal payment plan consists of installment payments, establishing the minimum amount for each period, that will continue to be paid regularly until the total amount is paid.
• The deferred payment plan, with no payment amounts set. It is up to the shoppers to manage the payment plan, so that they can pay the balance in full when the due date hits.

Layaway, like BNPL, may not require a credit check, which makes it an exciting choice for some customers.

However, unlike BNPL, which generally spreads out payments into several installments due in a relatively short time frame, Layaway options can give you several additional months to pay.

Furthermore, if you cannot make the installments, a Layaway plan won’t harm your credit score. Instead, you can cancel the plan and receive a refund of your deposit and past payments depending on the store, though a cancellation fee may apply!

You need to keep in mind that the item you’re buying won’t be available until you’ve paid in full. Layaway can also require a minimum amount to be spent, and some items may even be excluded from Layaway purchases!

Layaway was a successful financing and loyalty program, but it was eventually updated and upgraded to a more consumer-friendly installment loan, also known as BNPL.

With consumers’ lack of cash during the pandemic due to several reasons, fintech firms, retailers, and consumer goods and services companies have expanded their financing options to support the buyers’ needs.

BNPL plans can cost almost no interest payments at all, and that’s way better than shopping with a credit card, which has probably a double-digit annual percentage rate (APR).

This option may also be available to consumers who don’t have a credit history or don’t qualify for credit cards or other loans; for example, Afterpay doesn’t run a credit check to qualify.

BNPL plan can downgrade your credit if a point-of-sale installment loan is unpaid. Delinquent accounts are usually reported to the credit bureaus or transfer overdue accounts to a debt collector agency.

The overuse of the plan can also lead to over-borrowing and spending beyond necessary means. Although the number of retailers that accept BNPL keeps growing, not all stores have signed on yet; depending on where you shop, you may not be able to use it at all, even you want to.

Both options give shoppers more time to pay for their purchases, often free of charge. Which one works best for you? The answer depends on how urgently you want the item(s) bought and how much time you need to pay the entire price tag.

BNPL allows you to get your hands on them right away, right after making the first payment toward the plan as a deposit, which means there’s no waiting period to get the merchandise as there is with Layaway. However, the latter can give you more time to honour the payment.

While being both affordable payment methods, the answer to the question mentioned earlier depends on the time you can afford and the reasons for purchasing the first place.