More Canadians are taking advantage of “buy now, pay later” purchase plans, allowing them to pay for items in a number of installments, but an expert is warning that the payment option carries risks.

“Over the past couple of years, if you've been to a Canadian Tire, you’ve probably been asked if you want a 24-month equal payment option,” Merril Mascarenhas, managing partner at Arcus Consulting Group, told BNN Bloomberg in a Wednesday interview.

“It's growing at about 20 per cent a year, which is notable because it's still at a small base of about $200 million, but it's projected to grow to about a billion dollars in 2028.”

While the option to pay off an item in installments during an interest-free period may be convenient for many shoppers, Mascarenhas cautioned that the interest rates on a balance owing at the end of a pay period are significant.

“The concern we have about the buy now, pay later (BNPL) option is that after your period ends, the interest rate can go up to even 37 per cent,” he said.

“It's lightly regulated right now, unlike credit card rates.”

His firm’s research has found that consumers who have between two and four outstanding BNPL loans are twice as likely to default at the end of their interest-free period.


Younger people tend to be the most likely BNPL users, Mascarenhas said, though people of all ages are increasingly using BNPL, regardless of whether they already have a credit card.

High inflation and interest rates have left Canadians strapped for cash or with less available credit, making BNPL a more attractive choice for all demographics in the current economic environment, Mascarenhas explained.

“Moving forward, the two variables that could drive BNPL is a recession, job losses, or interest rates remaining high, so we do believe it's going to grow rapidly over the next couple of years,” he said.


As BNPL becomes more widespread, Mascarenhas made the case for an increased focus on regulation to protect both buyers and sellers, noting that being approved for a BNPL loan doesn’t come with a hard credit check.

“It's a soft check, so it doesn't register the way a new credit card would,” he said.

“That is a concern because of the rate at which (BNPL) is growing, so I would assume regulators are taking a good look at it.”