In recent years, “Buy Now, Pay Later” options (often offered under slogans like “4 Easy Payments”) have been rapidly multiplying in Quebec, both in online stores and traditional retail outlets. At first glance, this approach seems appealing: it allows you to get a product or service immediately while spreading the cost over several installments.
However, behind this apparent simplicity lie very real risks. For many consumers already financially vulnerable, these installment payments can become a trap leading to debt problems.
Let’s take a closer look at this type of financing, its dangers, and the precautions to take before using it.
What Are Installment Payments?
The concept is simple: instead of paying $400 upfront for a purchase, the merchant or a payment platform (Klarna, PayBright, Afterpay, Sezzle, etc.) offers to split it into 4 installments of $100 over a few weeks or months.
In some cases, there are no fees or interest, at least if payments are made on time. This is what appeals to consumers: the impression of having access to interest-free credit.
However, behind this apparent free-of-charge offer are strict conditions. High fees or interest may apply if:
- a payment is declined or late;
- the consumer exceeds their authorized limit;
- the installment plan is extended or converted into regular credit.
Why Is It Risky?
Normalization of credit
Installment payments create the illusion that a purchase is more “affordable” than it actually is. Paying $50 today may seem harmless, but we forget that three more payments will follow. This normalization of credit encourages more consumption, sometimes beyond one’s means.
The snowball effect
A single installment plan can be manageable. But what happens when you accumulate several at the same time? A clothing purchase here, an electronic device there, a vacation booking… Quickly, the monthly budget is saturated by numerous small recurring payments.
The danger is not so much in the initial amount of each purchase, but in their cumulative effect.
Lack of visibility
Unlike a credit card where the total balance is visible on a single statement, installment payments are spread across multiple providers. It becomes easy to lose track. The consumer believes they are in control of their finances, but underestimates their future commitments.
Hidden fees
A single missed payment can generate fees of $10, $20, or more. And if the consumer needs to defer payments, the “interest-free” option can turn into financing at a rate often higher than that of a credit card.
The Link With Debt Problems
As licensed insolvency trustees, we regularly meet people who have been seduced by this type of financing. Here are the mechanisms that can lead to over-indebtedness:
- Ease of credit: several small payments that seem harmless eventually represent a significant portion of disposable income.
- Lack of budget planning: consumers do not always include these future payments in their budget.
- Accumulation with other debts: credit cards, lines of credit, car loans… Installment payments become an additional debt that further weakens the financial situation.
Ultimately, the consumer finds themselves in a spiral where a large portion of their income is already committed, leaving little room for unexpected expenses. An unplanned expense (car repair, medical bill, loss of income) can then be enough to push them into over-indebtedness.
When to Seek Help?
If you feel that your installment payments, combined with other debts, are starting to overwhelm you, it’s time to act. Warning signs include:
- Postponing or missing some payments;
- Relying on credit for everyday purchases;
- Using credit to pay off other credit;
- Feeling stress or anxiety when thinking about your finances.
A licensed insolvency trustee can help you perform a comprehensive assessment of your financial situation. Contrary to popular belief, consulting a trustee does not necessarily mean declaring bankruptcy. Other solutions exist, such as a consumer proposal, which allow you to regain control before it’s too late.
We Are Here For You
Installment payments are presented as a modern, flexible, and hassle-free solution. In reality, they can represent a financial trap: attractive in the short term, but dangerous in the long term if accumulated without thought.
The key is always to maintain a clear view of your budget and financial priorities. If you feel that your debts are taking up too much space and your monthly payments are becoming difficult to manage, do not wait. We are here to listen, assess your options, and guide you toward a new financial balance.
