Survey: Canadians Are Turning to Credit Cards and BNPL Loans to Finance the Holidays

Cash is on the naughty list this year and inflation is putting a lump of coal in 50% of Canadians’ stockings. According to a recent Hardbacon survey about Canandians’ holiday shopping intentions, 50% of respondents say that inflation will have them spending less this year. And when they do spend, it’s credit cards and BNPL loans that will help them cope with the limitations of cash.

Canadians are getting deeper into debt

Canadians are addicted to loans. In June, the federal government reported that the Canadian ratio of credit debt was $1.82 for every $1 in disposable income. That was before the many subsequent Bank of Canada interest rate hikes, inflationary pressures and news of a looming recession grew in earnest.

But the answer is not always to save and stay away from consumer credit. Credit cards are easy to get loan products. Staying away from credit will hurt you because you need it to establish a strong credit score so that you can qualify for bigger loans, say a mortgage or auto loan, at better interest rates. 

Plus, Canadians realize that you can get more from a credit card rewards system than you can by paying with cash.

Canadians preferred types of credit cards 

There is a hierarchy in terms of the type of credit cards Canadians want to use for their holiday spending. 

The Hardbacon survey found that 64.34% of people who said that they would use credit for their holiday spending will either use a cash back credit card (33.67%) or a rewards credit card (30.67%). 

The preference of Canadians for cash back rather than rewards points isn’t that surprising, even though it’s often possible to squeeze more value out of a reward credit card, compared to a cash back credit card. According to a recent survey commissioned by Rakuten, 63% of Canadians prefer cash back to reward points when given a choice.

Given the continued jump in the price of food in stores and fuel, Canadians are looking for ways to stretch their dollar now. Aspirational marketing like travel and experiences are great when your daily cost of living is low. Canadians now are facing a possible recession and the reality of prices in stores. Fantasy is on hold for now. And credit card offers are leaning in to offering higher cash back rates in those same categories.

As for other types of credit cards, Hardbacon found that only 12.67% said that they would use a low-interest credit card. Another 7.33% will use a store credit card. Finally, 1.33% will use a standard credit card for their spending. 

The remaining 15.33% of respondents who will use some form of plastic to pay for the holidays tells a unique tale. It shows that not everyone who wants a credit card can qualify for one, so they look at easier ways to get on the credit card ladder.

10.67% will use a secured credit card. These specialty cards help build people’s credit score so that they can eventually qualify for conventional credit cards and loans. Another 3.67% will use a prepaid credit card.

Buy Now, Pay Later (BNPL) is on Canadians’ radar

While it is more popular in the United States, Hardbacon asked respondents specifically about BNPL. 4.12% of those polled would use a BNPL program this year for the holidays. 

These installment plans are really deferred payments, a relatively new way to pay purchases in equal payments. However, Canadians are using them for many things, even groceries.

How big is BNPL in the world? Reportlinker estimated the 2021 global BNPL market at a staggering $141.6 billion US. And some big name companies like Apple, PayPal and even Amazon are getting into the game in the US market. 

Furthermore, major Canadian credit cards issuers such as Scotiabank and American Express also have some sort of installment payment plans too. It is a smart move considering Research and Markets expect the BNPL market in Canada to reach $5.95 billion US this year.

BNPL are hard to avoid when shopping online. Paybright, Klarna, Sezzle and Affirm are on sites like Sephora, Walmart, and even Expedia. Klarna has shown that BNPL can increase consumer spending by up to 45%, and decrease what online retailers call “shopping cart abandonment’’. 

It’s true that BNPL loosens the purse strings. Hardbacon found that 61.11% of those who planned to use BNPL this holiday season admit that they would spend less if they didn’t have access to this type of credit.

BNPL has something that consumers want right now. An interest-free loan

The consumer agrees to pay it off in predetermined installments. So long as they do that, there are no interest charges. Of course, if they do miss payments, the missed amount is added to the next scheduled payment. Missed and unpaid debts eventually end up being sent to debt collectors. If your BNPL loan is linked to a credit card, the unpaid balance is transferred to your credit card if you cancel the installment plan or if you miss a payment.

Canadians estimate spending an average of $767 on the holidays but will pay it off for a long time

The survey found that Canadians estimate spending an average $767 on the holidays, including gifts, entertainment, and transportation. However, 34.55% of respondents know that they are spending a lot more than if they didn’t have a credit card. Inflation or not, credit products make people spend more, even if they know that they will have trouble paying it off.

How much more? Of those who answered that they plan to use a credit card, they estimate an average credit card debt of $1,257.84 come January 2023. On the other hand, those using BNPL for holiday shopping estimates they will accumulate $702 in BNPL debts by January 2023. 

Of course, that doesn’t mean that Canadians will pay off their balance come January. The holidays are exacerbating an existing problem for some. How so? 31.53% of respondents already know that they won’t be able to pay off their credit card in full between November 2022 and January 2023.

The online Hardbacon survey of 437 Canadians was conducted between October 25 and 30, 2022.