What payment plan is best for me?

“Buy now, make interest-free payments!” “Stream your favourites, first 3 months free!”  

You may have seen headlines like these online or in-store at your favourite retailers. With so many payment options, it can be hard to resist buying that flashy new appliance or signing up for the latest streaming service to binge watch a popular new show.  

Retailers and service providers aim to make their products more budget-friendly by introducing payment plan options. While these options appear convenient, it is important to know what you're signing up for, so you don’t end up bogged down in debt. 

Subscription Payments 

With a subscription payment, you can get access to a wide range of products and services like video and music streaming platforms, software, beauty products, and even meal kit deliveries.  

Subscriptions may seem appealing with affordable weekly or monthly payments. However, it’s easy to sign up for several subscriptions without realizing just how much you are paying overall.  

Here are five common pitfalls to consider when signing up for a paid subscription: 

Auto-renewal 

Many subscriptions auto-renew, which means they automatically charge your payment method for the next billing period. You may forget about these renewals, leading to unexpected charges that don’t fit your budget.  

Difficulty canceling 

If you decide to cancel a subscription, you may have to go through a lengthy process or contact customer support. Out of convenience, you may postpone the cancellation process, leading to continued charges. 

Unused services 

Without careful monitoring, you may be paying for subscriptions for services you no longer use or need. You may also subscribe to two or more providers that offer similar services or products. Over time, these costs can add up. 

Free trials 

Offers for free or discounted trial periods can be enticing, but they often require you to supply payment information upfront. If you forget to cancel before the trial period ends, you may be automatically charged for the next payment. 

Total cost 

Providers may charge more for a product or service on a subscription plan than if the product is paid in full upfront. Consider all payment options and whether the product or service is worth the total cost before deciding what payment method is best for you.  

Companies may try to sweeten the deal by offering discounts, bundle deals, loyalty rewards, limited time offers and referral programs. These benefits are only worth it if the product or service suits your needs and provides value.  

Before signing up for subscriptions, consider whether if fits your budget, the value of the service, and your long-term commitment. Make it a habit to audit your subscriptions that are automatically renewed. If you aren’t using the services, you may be wasting money.  

Deferred and interest-free payment plans 

Buy now, pay later (BNPL) is a modern way to shop on credit. With BNPL, you can buy something now and delay payments, or pay for it in bi-weekly or monthly instalments. BNPL is popular for its convenience, letting you break down big expenses into manageable payments.  

There are two types of BNPL plans: equal payment and deferred payments.  Equal payment plans allow you to make regular payments, called instalment payments, until the full balance is paid.  Deferred payment plans offer the flexibility to decide when and how often you pay the balance, as long as it is fully paid by a set date.  

Retailers often promote zero-interest payment plans, which can be tempting. But read the fine print: if you miss a payment or don't pay the full amount by the due date, you may be charged late fees and interest. Financial service providers may also run a credit check before approving your plan. It is important to understand the terms and conditions of the plan, if your payment information is reported to the credit bureau, and what happens if you miss a payment or if you do not make a full payment by the due date.  Learn more about Buy Now Pay Later payment plans.  

Before you sign up, consider: 

Does the purchase fit your budget and spending goals?

Understand your financial situation and decide what you can comfortably afford. Will the purchase lead to over-borrowing or spending above your means? Using payment plans for multiple purchases can lead to a pile-up of debt that becomes difficult to manage.

What are the terms and conditions?  

Read the fine print so you are aware of any setup or default payment fees and understand how the payment plan will affect your credit score.

Is the item a need or a want?  

Avoid making impulsive purchases. Take your time to evaluate whether the purchase is an item you really need.

Do you have the discipline and financial security to make your payments on time?

Ensure you can pay your monthly payments and any balances by the due date to maintain a positive credit history.

It can be easy to sign up for too many payment plans, causing you to over-borrow. Deciding whether the item is a need or want can help you manage your purchases and help you avoid taking on more debt than you can afford. If you have questions, seek help from a financial professional.