What is a Buy Now, Pay Later plan?
A Buy Now, Pay Later plan can help make life more affordable. Learn more about these plans and how they work.
Updated 
9 min. read
In an ideal world, you’d have plenty of time to save up before making a major purchase. But life doesn’t always work that way. Your car breaks down, it’s time to replace your dishwasher, or you need to upgrade your tech — but you may not always have the cash handy to pay for it up front.
Luckily, there are resources to help. A Buy Now, Pay Later plan can help make major purchases easier by letting you make smaller payments over time. These types of plans are on the rise around the world — the amount of Buy Now, Pay Later ecommerce represented 5% of global e-commerce spending in 2022, according to the FIS WorldPay's Global Payments report.
So — what is Buy Now, Pay Later, and how does it work exactly? We’ll break down the details on how these installment plans can help make life more affordable.
What is a Buy Now, Pay Later plan?
A Buy Now, Pay Later (BNPL) plan is a type of short-term financing that lets you pay for something in set installments over a period of time, rather than all at once.
Basically, you’re buying something now without having to pay for it in full right away. These plans allow you to purchase things you need and are handy in situations where you might not be able to afford them in entirety upfront.
You might also hear these plans called installment payment plans, installment loans, or credit card installment plans.
One type of BNPL plan is a point-of-sale installment loan. These types of loans are widely accepted by major retailers and online stores, making them an easy way to pay for larger purchases.
How do Buy Now, Pay Later Installment plans work?
The basics of a BNPL plan are pretty simple — they’re right there in the name. You make a specific purchase that’s financed with credit from your plan provider, then you repay that provider over an agreed-upon period of time.
The exact details of your BNPL plan will vary depending on what financial service provider you use. Each has their own terms and conditions including payment frequency, interest rates, fees, and payment method.
Let’s dive into some of the details. For instance, who manages your BNPL plan? Your BNPL plan provider may be:
A financial institution, like a bank or credit union
A financing company
A money services business (like a fintech company)
You’ll make all your repayments directly to your BNPL plan provider, rather than to the merchant you made your purchase from.
No matter the provider, there are generally common aspects among these types of installment plans:
BNPLs operate like a short-term loan. A short-term loan is a borrowed sum of money that needs to be repaid over a set period of time. Just like a short-term loan, BNPL plans typically are repaid with interest-free fixed payments. However, there might be some exceptions depending on your agreement with your provider.
BNPLs are used for a specific purchase. When you opt into a BNPL, you’ll be spreading out your payments for a specific purchase of your choosing — like that new washing machine or the latest smartphone. You can opt into a BNPL service at the point of sale or you after you’ve already bought the item.
BNPL plans can be set up at point of sale for purchases made in-store or online with participating merchants. If you choose a BNPL at the point of sale, you’ll set up your plan directly at the checkout. You may also have a BNPL plan that you can set up post-purchase. You will pay off your plan in monthly installments as part of the minimum payment amount on your credit card.
What are the different types of B N P L plans?
There are two main types of BNPL plans. But don’t worry, they’re both pretty simple to understand. The primary difference between the two is the method in which you pay back the borrowed sum.
The most common types of BNPL plans include:
Equal payment plans: With this type of plan, you’ll repay your purchase amount in regular payments of the same amount over a set period of time. For instance, your $900 purchase may get divided up into $75 monthly payments (plus any fees) over the course of a year. Your agreement with the plan provider will outline the amount and frequency of your payments and how long it will take to pay off your balance.
Deferred payment plans: In this case, you have a set date for when you're expected to have repaid your balance in full. But there are no set numbers for payment amount or frequency. This type of plan obviously comes with more flexibility than an equal payment plan, but it also comes with more responsibility as you’ll need to manage your payments throughout the plan term.
Your B N P L payments can be managed through a BNPL app or directly through your credit card if your provider offers this feature.
How to make payments for your B N P L plan?
When it comes time to make payments on your BNPL plan, you have some options.
1. Third-party apps:
- Pre-authorized debit payments: You give your bank information to your plan provider, and your regular, equal payments are automatically debited from your bank account. If your account doesn’t have enough funds to cover a payment, you might be charged a fee from your bank and/or your plan provider.
- Pre-authorized credit card payments: Your regular, equal payments are charged through your credit card. You give your credit card information to your plan provider, and they automatically charge you for regular payments (and sometimes a processing fee with each payment). You’ll be responsible for paying off your credit card on time and making sure your credit card provider allows BNPL transactions.
2. Credit card provider:
If you’re using a B N P L plan offered by your credit card provider, like BMO PaySmart™, the method of repayment may be slightly different.
With BMO PaySmart, your monthly BNPL payment will be added to the minimum payment due on your credit card each month. This will continue for the set length of your BNPL plan. So, you’ll continue to pay off your credit card just like normal, but with a higher monthly minimum until you repay the plan amount in full.
What are the benefits of using a B N P L Plan?
We all know that unexpected expenses don’t always wait for when you can easily pay for them. A BNPL installment plan can be a convenient and affordable way to make everyday life more affordable.
Here are some of the other top advantages of using a B N P L plan:
It’s a convenient way to make larger purchases.
You can spread payments out over time to better fit your current budget.
There are usually no required credit checks to qualify.
Manage your plan with digital self-service features from your device.
The simple structure makes for straightforward repayments.
Take advantage of low or no interest on the cost of your purchase.
Is the BMO PaySmart Installment Plan Different from other B N P L Plans?
What is the BMO PaySmart plan and how does it compare to other B N P L plans? Like other installment plans, our BMO PaySmart plan empowers you to make the purchases that you need and turn them into smaller, more manageable monthly payments.
Here are just a few of the key things to know about BMO PaySmart and how it’s similar to and different from other B N P L providers.
There’s no credit check to set up your BMO PaySmart plan, while some B N P L plans require a soft credit check.
You can use BMO PaySmart on any eligible purchase over $100, not just with merchants who offer their own B N P L. This gives you more options and flexibility.
Unlike third-party apps, BMO PaySmart is built into your BMO credit card so you can manage it and take advantage of B N P L benefits in one place.
No separate application is required since BMO PaySmart is linked directly to your BMO credit card.
Typically, B N P L plans let you make repayments over four to six weeks from your purchase. BMO PaySmart offers 3, 6, and 12 month repayment options to better fit your budget.
Not every B N P L plan is interest-free. With BMO PaySmart, there’s no interest being charged on your balance, just a low monthly fee.
You’ll know upfront exactly how much you’ll pay each month so you can plan accordingly.
How do I qualify for a BMO PaySmart plan?
You’re the primary cardholder of an eligible BMO credit card that’s in good standing.
You’re registered for BMO Online Banking and have an email address on file.
You have a recent qualifying purchase of $100 or more on your BMO credit card.
You’re a resident of a province or territory in Canada.
You do not already have more than 15 BMO PaySmart installment plans.
When you log into BMO Online Banking, you’ll see a list of transactions that are eligible for BMO PaySmart. Eligible purchases are those of $100 or more that have been posted to your credit card account but not yet appeared on your latest credit card statement.
Do Buy Now, Pay Later Plans affect my credit score?
Most B N P L plans don’t require a hard credit check up front — for example, BMO PaySmart does not require any credit check to get started.
Some might use a soft credit pull, which does not impact your score. However, if you are using a B N P L plan to make a larger purchase through a third-party app, they might require a hard credit check.
If you don’t make your regular payments on time, your plan provider may report your late payment history to the credit bureaus. This could potentially ding your score, so it’s important to make every payment on schedule.
Are there any fees associated with the BMO PaySmart installment plan?
The BMO PaySmart plan offers 0% interest on your balance. Instead, you’ll pay a low monthly fee of up to 0.9% of the original purchase amount. You’ll get the exact amount when you’re setting up your plan.
If you decide to cancel your plan before you’ve repaid in full, your remaining balance will be subject to your standard interest rate like a normal credit card payment.
The bottom line
A Buy Now, Pay Later installment plan can help spread out the cost of a purchase in a structured and predictable way, without impacting your credit score or racking up interest charges. This can be a convenient method to buy the things you need now, without blowing your everyday budget. That’s why B N P L installment plans are a helpful and flexible tool to keep in your financial toolbox. Sign in to BMO Online Banking to learn more about BMO PaySmart and set up a plan today.
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Learn more about BMO PaySmart and set up your plan today.
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