Buy Now, Pay Later (BNPL): Hidden Risks for Borrowers

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Buy Now, Pay Later (BNPL) financing has experienced explosive growth in Canada, with platforms such as Affirm, Afterpay, Klarna, and PayBright (now Affirm) offering seemingly interest-free installment payments. According to a Payments Canada study, over 30% of Canadian consumers used a BNPL service in 2025. While these services are marketed as cost-free, they carry significant hidden risks for mortgage borrowers. First, late BNPL payments are increasingly reported to Equifax and TransUnion credit bureaus, directly affecting credit scores. Second, multiple BNPL balances may be treated by mortgage lenders as financial obligations in the TDS ratio calculation. Third, repeated BNPL use can signal overconsumption behaviour to lenders, which hurts the qualitative assessment of the application. The Financial Consumer Agency of Canada (FCAC) and the AMF in Quebec are actively monitoring this growing sector. AMF-certified mortgage brokers must educate their clients about the potential impacts of BNPL on their borrowing capacity and credit file well before the mortgage application.

BNPL Financing: A Hidden Risk for Mortgage Borrowers

Buy Now, Pay Later (BNPL) financing has transformed Canadian consumer habits. Platforms such as Affirm, Afterpay, Klarna, and others offer the ability to split online and in-store purchases into installments, often in four "interest-free" payments. While this payment method appears harmless, it carries very real risks for anyone considering a mortgage application in the coming months or years.

How BNPL Works in Canada

The most common BNPL model splits a purchase into four equal biweekly payments. The consumer pays the first installment immediately, and the remaining three are automatically deducted. For larger purchases, some providers offer plans of 6 to 36 months that may carry substantial interest (sometimes 24-30% annualized). According to Payments Canada, the value of BNPL transactions nationally now exceeds several billion dollars annually. The merchant pays a commission to the BNPL provider (typically 3-8% of the transaction), meaning the cost is ultimately embedded in product prices.

Hidden BNPL Risks for Your Mortgage File

Credit score impact: late and missed BNPL payments are now reported by several platforms to Canadian credit bureaus. Even a small late payment on a $200 purchase can affect your score.
Stacking obligations: three or four active BNPL plans simultaneously increase your total indebtedness. Mortgage lenders may factor these payments into the TDS ratio calculation under OSFI's Guideline B-20.
Lender perception: frequent BNPL use may signal overconsumption tendencies to lenders and mortgage insurers (CMHC, Sagen, Canada Guaranty), which hurts the qualitative assessment of your application.
Incomplete regulatory framework: unlike credit cards and conventional loans, BNPL is not yet fully regulated in Canada. The FCAC and provincial regulators, including the AMF in Quebec, are working to define a stricter regulatory framework.

Strategies to Protect Your Mortgage Application

Stop using BNPL 6 months before applying: Cease using all BNPL services at least 6 months before your mortgage application. This allows time for existing plans to be completed and for payments to be accurately reflected on your credit file.
Pay off all active plans: Make early repayment of all outstanding BNPL plans. Most providers allow early repayment without penalty. This eliminates these obligations from your debt ratio calculation.
Check your credit file: Review your file at Equifax and TransUnion to verify whether any BNPL late payments appear. If so, dispute any errors and plan enough time for your score to recover.
Disclose everything to your mortgage broker: Share all BNPL obligations with your AMF-certified broker. Complete transparency allows the broker to build a strong file and anticipate lender questions.

BNPL is a financing tool that may suit certain one-time situations, but its regular use represents a real risk for mortgage borrowers. AMF-certified mortgage brokers in Quebec have the responsibility, under the LDPSF, to educate their clients about these issues and guide them toward financial practices that support their homeownership goals.

Frequently Asked Questions

Does BNPL affect my credit score?

Increasingly, yes. Historically, BNPL providers did not report to credit bureaus. However, since 2024-2025, several major platforms (Affirm, Klarna) have begun reporting payments to Equifax and TransUnion in Canada. A late BNPL payment can now appear on your credit file and lower your score.

Are BNPL payments factored into mortgage calculations?

It depends on the lender. A lenders (major banks) are beginning to require disclosure of BNPL obligations and may include monthly payments in the TDS ratio. Lenders that do so generally consider the scheduled monthly payment or a percentage of the total balance. Speak with your AMF-certified broker to learn how each lender treats these obligations.

Is BNPL really free?

Not always. While pay-in-4 plans are generally interest-free, late payments trigger fees (often $8 to $15 per occurrence). Additionally, some longer-term BNPL plans (6-12 months) carry interest rates reaching 24-30%. It is important to read the terms carefully before using these services.

How does BNPL hurt my mortgage application?

Beyond the mathematical impact on ratios, frequent BNPL use can be viewed negatively by mortgage insurers (CMHC, Sagen, Canada Guaranty) during file analysis. Multiple active BNPL purchases suggest a credit-financed lifestyle, which can lead to a denial or stricter conditions.

Should I pay off BNPL balances before applying for a mortgage?

Yes, that is the standard recommendation. Pay off all active BNPL plans at least 2 to 3 months before your mortgage application. This prevents payments from being included in your TDS ratio and eliminates any negative signals for the lender or mortgage insurer.