This entire thread is focussed not on BNPL, but whether the entire concept of consumer debt makes sense.
Some folks say consumers should never take on debt for purchases, when they can save up instead. Others point out that it’s unavoidable in some cases. You may need a car to get to your job, meaning the asset you purchased creates value that helps you pay for it.
And yet others point out that you shouldn’t be financing food delivery. If you can’t afford that delivery now, then you probably can’t afford it spread over 12 months.
But ultimately this comes down to risk vs reward inherent in any financial transaction. The amount of leverage each is person is willing to take depends on their risk appetite. And everyone’s risk appetite is different. The folks frustrated with those who take out a lot of debt can’t fathom why others have greater risk appetite. The folks who do take that debt can’t fathom what’s wrong with doing so when it’s within their appetite.
For a lot of people the "American dream" is going to college and buying a house, even if your family can't support those aspirations. That's not doable for the vast majority of Americans unless they take on some amount of debt. And tbh it's often a good idea from a financial perspective as long as you're thoughtful about when to use leverage
The UK has stronger consumer protection for credit purchases over something like £100. So even without rewards it's worth it. But yeah, I guess that isn't an eu consumer directive but an actually unique British one?
Yeah there's also non-credit card that has the same fraud protection, contactless, separated balance, plus mobile app that's very fancy that can even pay street food shop.
This applies to more than just banking. They were the first to innovate. Thus they get stuck with first generation technology while other countries leapfrog ahead.
Example: back in 2009 I got an American Express card with contactless technology. It was one of the transparent cards with the blue square in the middle so you could see it right inside the card. Problem was, no store had a terminal it could be used with. After a few years, Amex gave up on it and my new cards didn’t have it. Meanwhile the rest of the world is starting to roll it out. After a few more years (last 4-5 years) cards finally got contactless again, after the rest of the world had had it for years.
There is more to it than that. Europe tends to write laws with consumer protection in mind. The US tends to treat companies and people as equally powerfull, with the courts protecting both. After decades of different legal philosophy, we see these differences:
Europe tends to be a whiney nanny state, but lacking enforcement means companies can violate legal rights for years and then be very surprised when they get slapped with more and harsher enforcement. Facebook is learning this right now.
The US, meanwhile gets 'adequate protection' against fraud, credit scores, identity theft, frivolous lawsuits and binding arbitration. If you're unlucky, the US gov and corporate system will grind your life to pulp for no reason, and the powers that be won't even notice they did something
As an european, I vastly prefer what I got above the US system and avoid credit cards as an unsecure mess that gets your money stolen. But maybe that's just because I never learned to navigate the US system.
Clearly both systems can function and both have big holes.
Precisely the advantage of credit cards is that your money can never be stolen, only the bank's money. People keep talking about fraud protection, but that's the difference between a debit card and a credit card. When your debit card or actual bank account information is stolen or used fraudulently, your money is gone, until the bank deals with the situation. When your credit card is stolen, the bank's money is gone. You never owe it, you never pay for it, you have exactly the same amount of money you had before the card was stolen. You're not suddenly short money until some process runs to completion. You are at most dealing with the inconvenience of not being able to charge that card anymore until you get a new one.
A surprising amount of people also get away with spending the bank's money and never paying them back, which I suppose some people also see as a benefit. They probably do pay enough late fees, interest, etc. in their life that the bank comes out ahead anyway, but I know multiple people who simply didn't pay on a credit card - ever - and nothing happened to them, other than a few-years credit hit that didn't stop other companies from continuing to offer credit.
There was a credit card attached to my bank account. If I buy something, the money disappears from my bank account on a fixed day of the month. I have no idea about how to influence that payment, and it seems not available in the web UI. I have no idea how not to pay that money, or how to dispute charges with it. Presumably I can visit the bank. But it has no chip and pin, so if anyone has the number and means ill, my money disappears. So it basically behaves like a very insecure debet card with a delay, i.e. I have to manually validate the payments corresponds to what I've done every month. It mostly seems a hassle to me. As I have no credit score that I know of, I also have no idea about how the bank wants to punish me if I don't pay them. I got it in the past to buy stuff from US websites, but payment processors accept my other means of payment by now. In fact, it expired over a year ago and I never saw a need to renew it.
+ it is generally possible to set up autopay for credit cards in the US, but it is not the default and I have never seen it not be very obvious on how to turn off. There's regulations about this in the US.
+ US debit cards and credit cards virtually all have chip and pin, but you can use only the number as a fallback for things like over-the-phone or Internet transactions, so it doesn't do much good. Terminals do usually require the chip, which presumably hinders skimming. AFAIK the old stamp machines are even still supported, though I haven't seen one in a while.
+ disputing charges on US cards generally consists of 1. login to the website 2. select the charge / hit the hamburger menu next to the charge 3. click dispute transaction.
Yeah, Americans often stick to the first version of something that worked well enough. Examples: election system (indirect), constitution, 110V sockets, iPhones, imperial system of units... It's hard to break established practice.
In the US, debit cards do have "fraud protection", in that if someone steals my card or number somehow and spends $500, after an investigation it will be restored to me.
With a credit card, I am never out the money. I see a charge, report it, and none of my money is ever missing. I will never have to pay the $500, and it will never come out of any account that belongs to me.
From Europe. Genuinely never used anything other than the card provided by the bank. But there are some nefarious companies which require a SEPA mandate for recurring deductions and make it hard to cancel. I also have my reservations about always using a card directly linked to my bank account but so far so good.
Yeah, it can get problematic. I got into some infinite loop of a plane ticket system one day. They charged me around £800 per iteration continuously until the charges got rejected.
It got reverted within a day or so, but having your current account wiped without knowing when will it get resolved and whether any money you put back there will disappear as well is not a great situation to be in. Having at least two different accounts in that case is good.
> The amount of leverage each is person is willing to take depends on their risk appetite.
You say "risk appetite" like it's a preference for vanilla over chocolate, but we are in fact talking about people enticed into making objectively bad financial choices that are destructive to their lives.
Yes, people are stupid. People are very old or very young, or don't speak the language well. None of these are excuses to lure people into bad financial decisions.
"I’m sure you’ve read a ton of stories that Gen Z is using “buy now, pay later,” all the time. The most recent Consumer Financial Protection Bureau pointed out that actually the biggest age cohort for “buy now, pay later” users are people ages 34–40. They’re millennials."
On a philosophical tangent, if you BNDP (buy now, don't pay), did you actually buy it? If you did indeed buy it, who did you buy it from - the original vendor or the party you didn't pay? We may need new language for the times we are living in.
Id daresay that what you asked isn't philosophical, but legal. And from what I gather, yes, it is a sale. And if you don't pay, they ding your credit. Hard.
And low/no credit people can't even use these services.
But to the larger point, there's a lot of things that claim to be a sale, but aren't really. I'm especially thinking of DRM music, movies, software, and generally copyrighted goods like that. Those folks are sure addicted to using the language of "sale" and then removing as they choose whatever they wish.
"BNPL providers can offer zero-percent interest rates because they charge merchants three to four times the average credit-card processing fee."
Right. And the vendor can't charge a higher price to the BNPL crowd, so they average it out over everyone. And thus the BNPL app user gets an "interest free" microloan, with everyone, even the people paying cash, having to pony up for the interest.
Just like credit cards with their incentive programs... the card companies are skimming 2-3% off the top anyway, might as well capture some of that for myself.
Even that was not quite right. Just take a look at those leading providers' financial reports, none would be pretty. They were virtually accumulating customers by providing heavy incentives using investors' money so that they could bump up the share price to allow early investors to exit. Making a profit was not even their secondary priorty.
I don't get it.. There's a childrens song in Denmark, it's lyrics go, roughly translated "and if you have money, then you can have, but have you none, then you may go!" (it's about buying bread at the bakery)..
When I see how people spend money they don't have, I'm always wondering if their parents never sang for them when they were young, or if they are of a particular dim nature.
Sure, I can see why some people would take out a loan for big things like a house.. But for just about everything else? No. Either you can afford it or you can't.
"But I need a car!" Yes, but you don't need a car you can't save up for, you need a car you CAN save up for.
"But old cars break down and are expensive to get repaired" Yes, but you don't have money to pay someone else to repair it, old cars have cheap parts and are relatively simpler to repair, learn how to do it, you're not in a position to be fussy about what skills are beneath you if you can't pay someone else to do it, stop thinking so highly of yourself and get to it!
When I see the option to finance a sandwich, my brain just melts.. No! If you don't have money for fast-food, then go to the grocery store and buy the ingredients yourself, you can make a weeks worth of sandwiches for what one ready-made one cost.
I'll be honest with you, it sounds like you've lead a pretty sheltered life. Living in poverty is fucking hard. All around you are parasites looking to take what little you have and kick you back to the floor.
Yeah, of course parents tell their kids to do better in life. But it feels like the world is conspiring against you at every step of the way. The only time anything good happens, it's due to the kindness of someone else, and kindness is not something you see often.
To me, it sounds more like they have lived a European life, not a sheltered life. Outside of the UK, there aren’t any European countries I know of that use e.g. credit cards on a daily basis. We are taught to avoid taking on debt and are financially risk-averse.
Isn't that how most people use their credit cards everywhere, or at least everywhere in the developed world? I thought the 20%+ interest was just a way to take advantage of you if you mess up and rack up too big a bill, or forget to pay your bill.
Anecdata, but I know multiple people that I associate with do caray a balance on their cards and by paying minimums. I don’t understand it, but then again I’m fortunate enough to have a software job that allows me to keep up with my social lifestyle without incurring debt.
How is “buy what you can pay “ mentality a result of a “sheltered life”？ It is probably the opposite. Although I would add BNPL is largely embedded in US culture and education. Geez, we even apply that to our education..
"Everyone is ready to take money from poor people and that's why your racist (or whatever) if you don't let poor people give their money to people ready to take it from them!!!1!"
Also the notion that successful people should not be giving advice to people who are less successful, because then... what, the less successful people might become more like the successful people? -- anyways, that notion is completely backward. One could only endorse it if one really wanted the less successful people to remain down in life.
He is in Denmark, where there is social democracy, high taxes and all encompassing social programs to protect people from the ravages of the Randian market. Of course he lived a sheltered life. But its not a fault on his side. People in countries with Randian realities not being protected from the ravages of the economy is where the fault is at.
I think this is a bit too simplistic of a way to look at it. Having sone debt is not necessarily bad, even outside of enormous purchases such as a house or car.
First, c'mon, people don't (directly) finance sandwiches. Have you ever seen a sandwich shop accept Klarna? If you're talking about a credit card that's something but that's not what this article is talking about, which is BNPL.
Second, in general it's not as black and white as either having or not having the money right now. If you have enough regular income to afford something over time and the interest rate is low/0%, it may make sense to spread the payments out over time rather than all at once. For example if you wanted to buy a €5K camera and maybe you don't have the money all at once but can afford to make 12 payments, what's inherently wrong about doing so?
If you can afford 12 payments with interest, you can by definition also afford to save for 12 months and then buy the camera. BNPL and credit card companies are masters of exploiting psychology and especially currently prevailing wusiness and entitlement ("But I want it now!!!1!", "I deserve to treat myself like a king").
Or you can afford the camera outright, right now. What's better out of these options:
1) Buy for cash the camera now. You don't have any cash in hand afterwards, and the camera is depreciating in value immediately as an asset only offset by whatever you do with it.
2) Buy via BNPL with no interest for 12 months, and pay exactly a 12th a month. You have the camera, but you also have 91% of your cash in the bank that /does/ get interest or can be used for anything else like investing in shares. You still have liquidity and can assumedly use the camera to generate some cash doing weddings or whatever as part of your hobby for one year.
3) Save cash where you are getting similar rates of interest as 2 for 12 months once you've identified you need something. Buy the camera a year after you needed it, you have lost the opportunity of 12 months revenue from maybe one wedding a month? The price is either affected by inflation after a year, or more hopefully its gone down due to competition with other models, but who knows. Also do you still need a camera? you've certainly lost out on a years experience to know if it was worth it.
BNPL makes plenty of sense if you can or cant afford something, more so if you can.
Having my funds reduced to 91% the rest of the year is waaay worse for me, than having it reduced to ~0% the rest of the month. Because, the rest of that month, I'll be super-vigilant, I'll be acutely aware of why I have less money than normally, I know not to make anymore purchases, I know that this month is not for an extra treat, because I bought the other thing.
Next month I'll be back up to 100% capacity.
This affects my model of my financial situation, because, it's a camera then.. ~91%, it's a new toaster there ~86% and then ~40% and ~20% and now I get into the dangerous "poor" mindset, it's well proven (and I can personally attest to this being a very real effect) that having less money makes it harder to be financially vigilant, there's opportunity cost* for once, but there's also a tendency to "treat" oneself more because things feel tight, there's a tendency to short-sighted savings (the more expensive pr roll toilet paper, versus the cheaper bulk option that has higher up-front cost for instance).
Now, to begin with, I'd go into "savings" mode a month before buying something expensive, so that I'm not at ~0% for a month, I'd never do that.
* Sure, there could be 100% opportunity cost right after paying in full for something, but the recovery to full capacity is also quicker. I really prefer the large, immediate consequences over the smoothed-out slow-squeeze.
This looks like a weakness in managing your personal balance sheet. You're willingly sacrificing cash flow and interest to simply balance sheet management, which may be worth the tradeoff for some but for those of us with the required skills it's really not.
Any amount of debt creates a degree of moral liability. The more that your possessions become contingent on the continuation of your cashflow, the less you are able to push back against things that you know are morally wrong. Do you think you would be strong enough to tell your boss "no" if it could mean losing all of your valued possessions?
If we are to make up scenarios, I can take $5,000, go to a casino, observe roulette wheel and bet on black when I notice bias. Bam, I now have $10,000! I am the smartest guy ever!
Seriously, OP never mentioned investing in a business equipment but wanting a camera. Also, that camera will depreciate no matter how you paid for it, but you conveniently mentioned it only in the scenario 1.
Because I assumed you'd understand the depreciation of the asset is a lot less than the appreciation on your investments or cash that you can do in the other scenarios. The entire point is its offset. Also that's not a business asset description, thats just normal life??? WTF buys a camera and doesn't offset some of the cost doing their mates wedding? You're not thinking rationally if you think using the credit system is comparable to a roulette wheel. You control its use. You can just clear the debt if its interest free, its not grown or changed. The credit system is designed around returns for people who can't afford something at all. It's utterly predatory, but if you financially are entirely above the risk of paying interest its just a lot of flexibility in preserving your cash capital.
Moral aside of shooting mates' wedding and charging for it(!), but as soon as you use equipment to earn it's a business/side gig. You may not like it but I'm sure tax authorities of any sane country will disagree with you.
For the rest I actually agree with you and think credit system is predatory and that if one can, one should take advantage of it. Just that buying something on credit because want, and using that something to earn money are two fundamentally different cases.
Why is it a problem if it’s a business or side gig? In the UK at least that just means that you need to report the income on your tax return if it’s above a certain amount. It’s not difficult. I’m not sure I’d describe countries that make you do more than this as ‘sane’.
Dude what world (or country) do you live in? Im in the UK and everyone has a £1k self employment allowance, that gets you quite a nice camera! Filling out the return is trivial.
Okay, I repeat my question above: if you can afford to pay over 12 months (meaning, you don't go into debt to do so), what's inherently wrong with doing it instead of waiting 12 months and paying all at once, besides ideological reasons?
There is nothing inherently wrong with that but it's a lot more risky then saving up.
Say after 10 months an unavoidable bill of $4k shows up and I got to pay it. If I'm saving up I can redirect that money. It sucks that I don't get the camera when I planned to but otherwise I'm fine.
Under a BNPL plan I have no extra money to allocate and might have to dip into Credit (potentially with high interest).
In short: Savings are fungible, payments are not.
Studies show that huge percentage of the population doesn't have any savings. For them it's particularly dangerous to have more recurring bills.
Your method is just as risky - say after you've just spent 5K on your camera an unavoidable bill of $4K shows up? Now you have no extra money and have to dip into Credit (potentially with high interest). Your best strategy would have been to have $5K on hand and still use financing if the terms are favorable - it keeps your funds at steady level, allows for future planning and gives you opportunities to invest or otherwise grow your capital. And yes, people without savings pay for that, it sucks to be such people but they are paying regardless if you take advantage of the financing scheme.
Does it matter? Even if he only gets half the price back, that leaves 1500 left of the debt he has to pay out of pocket. If he's paying monthly for the camera, he suddenly has a $4000 bill on top of whatever of the $5000 debt remains unpaid. I think I'd rather be in the former situation.
Even if not having any debt is extremely important to you then you are still out of 2500 on your camera transaction, which is pure loss here. However some people consider not just an amount of debt but its other qualities too and for them having debt of $5000 with 0% APR might be preferable to having $1500 debt with, say, 20%+ APR. At the end you need to count a monetary balance and compare a ($2500) loss on camera together with the interest paid on your $1500 loan against paying $5000 for the camera.
If math is hard consider your end state:
1. Without the camera, without $5000 + interest on the $1500 you borrowed.
2. With a $5000 camera, without $5000 you paid for the camera.
The state of the $4000 bill is the same in both cases, which state you prefer?
> There is nothing inherently wrong with that but it's a lot more risky then saving up.
Cash is king. Assuming 0% interest, it's financially better and less risky to do BNPL. This is separate from all the other financial decisions like savings, etc...
It's similar with CCs. I love my CCs and get a ton of value and free stuff by using them. I also have never carried a CC balance in 20+ years. Someone who is financially disciplined is leaving money on the table when not using CCs.
>Someone who is financially disciplined is leaving money on the table when not using CCs.
The trick is knowing whether or not you're financially disciplined. And usually one finds out the hard way. It often involves a credit card or credit facility of some nature.
This here. Not everyone can do that. I personally can. I try to teach my friends and family to save a bit and use credit cards as a tool to get a small bit of free stuff. However, those things are deadly if you have no skill in saving in the first place. They will wipe you out with interest payments and then some. That method only works if you have the ability to save first and put off impulse buys. Even having something simple like a checking account can be bad if you have poor ability to balance your budget.
My wife for example does not have this ability, however I can manage it by basically controlling the amounts we have and putting restrictions on how money is spent that teach the lessons of saving that her parents for some unknown reason skipped teaching her. Lessons like 'you have X amount of cash lets save up for that thing you want' 'lets review our purchases and see if they make sense on the amount of income we have' 'yes, your friend has a need of 100 bucks and we can cover it but will giving them 100 just make them ask next time for 1000 and will it actually fix their problem or delay it?'
I think the ability to manage money well and not get screwed over by credit facilities is highly correlated with ones level of trait conscientiousness. It's less about skills per se than it is about that particular trait. I would wager those high in trait conscientiousness naturally tend towards frugality and budgeting and those low in trait conscientiousness tend towards impulse buys and poor financial planning.
My wife is 99th percentile for trait conscientiousness and I'm 1st percentile. I'm amazed at the amount of money she's able to save and her level of discipline and she's generally gobsmacked at the amount of money I waste and the random shit I buy.
Having the information about what one should or shouldn't do is only part of the equation. 8t also needs to be something you can apply, and sadly some of us just can't.
If you take 12 payments you, by definition, are in debt! It seems you are conflating debt with net worth - a person can have positive net worth and still have debt(s). Even if it is 0% interest you owe money to someone. Every debt is a risk. It may be smaller or larger, but it's a risk. It also normalises the behaviour of going into debt for buying depreciating objects which is bad by itself.
Paying in installments requires you to have a secure stable income.
You may not have one tomorrow.
You may lose your job.
You may go through a divorce.
Maybe you have to move for months because your house has been flooded.
You don't know what your tomorrow's financials look like.
The only time that it may makes sense to pay installments if if the interests are really 0% and you have lots saved anyway. At that point..why not improve one's credit score anyway.
> The only time that it may makes sense to pay installments if if the interests are really 0% and you have lots saved anyway. At that point..why not improve one's credit score anyway.
BNPL providers typically provide 0% interest rates for longer that credit cards, which have 0% interest for anywhere from 3wks to 7wks (depending on when your statement closes relative to when the transaction settles).
Always spend other people’s money, especially at 0%. The trap is it creates a mental pattern to condition you to accept paying interest on other purchases.
if you can get a loan at 0% interest it's definitely in your best interest to pay that loan back as slowly as possible. The longer you wait the less you effectively owe as inflation does its thing. I'm 46 and still paying on my student loan, the interest rate is so low that (even in normal times) inflation outpaces it. I'm making money by paying it back over decades.
I think the argument is that its easy to get out of control and leave yourself exposed.
If you have discipline then I don't see any problems. I might behov the industry to be forced to do more stringent credit checks before allowing it either by law or regulation.
I have no sympathy for adults (important distinction!) who have no discipline with their finances. They aren't children who literally don't know better.
Those who do have financial discipline should not be inhibited for the sake of those who do not.
Besides, /most/ cases of financial ruin aren't literal death. They are generally just very expensive and horrible-to-go-through life lessons.
You then pay off your outstanding debts if you think there is risk you will be paying out more in the near term... That's why you only carry debt when you could otherwise afford something. Literally thats the point. Realistically though its even better if you lose your job because you have the cash in the bank you would otherwise have sunk into an asset. I just quit my job to be self-employed and have a bit of a career break. Before I did I got a 24 month interest free credit card. If I suddenly have to pay for something really expensive like a new boiler or something, I can put it on there and I have two years to decide what to do, or get a job with zero additional cost. That's security more than it is a liability. I've had a perfect credit score and never paid for credit other than my mortgage interest. People who refuse to use credit out of some broken parental advice of "never carry debt" is far more reckless since you're ignoring an entire avenue of financial management for yourself. Absolutely don't carry debts you cannot afford. But everyone should abuse the fuck out of the credit system, and the institutions designed around fleecing people a lot stupider than you. The bar for credit company profits is set at people where money is like water through their hands, not people who know how to keep a personal budget in a spreadsheet.
You can’t pay it off if you weren’t able to afford it up front. You’ve changed the scenario from “I can’t afford the full cost but can afford monthly payments” to “I can afford this and am using monthly payments as an interest free loan”.
Ideally you have an emergency fund so it doesn't matter. But compared to paying the cost up front I think you'd be better of using BNPL actually. You'll have more cash on hand to pay for necessities like food/rent, in exchange for a ding to your credit score if you don't have enough money left over to pay the monthly payments on the camera you use for your budding photography business
The tricky thing is factoring death into the equation. At some point, given that we all might die on any given day, delaying gratification to save a small amount of interest isn't worth the risk. But of course that's hard to calculate.
Also, if you wait to buy something then you have less time to enjoy it, so it is theoretically worth a bit less to you.
Correct, you can always save indefinitely to get the required amount of money and pay for whatever all at once.
The problem is that the above is assuming that there is no value to having the thing you want to buy.
For example: a person might be able to save for 12 months to buy a new camera, but that's now 12 months they don't have that camera. Presumably you had reasons for wanting that camera.
While there are a bunch of things I don't think it's ever good to go into debt for, your claim that there's no justification other than "I deserve to treat myself like a king" is BS.
As per usual for articles like this they pose this in context of the extremes "sandwich in payments", which I suspect if people have done that it is accidental and/or "huh? what is this like".
You also get to pay off a real-world lower amount due to inflation. However for many (most? myself included) the reality is that easy credit like this does lead to over extending in the longer term.
while I agree I can also see cases where you need things not later, but now but you'll have the money later not now. e.g. moving to a remote village where you really need a car or buying that compute for data processing or rendering you need for your freelance work
> First, c'mon, people don't (directly) finance sandwiches. Have you ever seen a sandwich shop accept Klarna? If you're talking about a credit card that's something but that's not what this article is talking about, which is BNPL.
Paypal offers me a pay-later option, apparently no matter how small the amount is or what I'm paying for. Sometimes two options (pay everything next month + pay in instalments). Or perhaps it's alwys two? I haven't really paid attention.
The next-month option is free (for me) anyway. I assumed that the risk of a one-month loan is low for Paypal and worthwhile because it takes a few transactions from the other payment processors usually offered by the same webshop. But that's just an assumption.
Deliveroo customers will see Klarna as an additional payment option when they arrive at check-out, where they’ll be able to choose one of three payment options:
Pay Now, to pay the full amount immediately; Pay in 30, to pay the full amount within 30 days; and Pay in 3, to pay in three equal installments, spread over 60 days.
Back in my twenties I bought a car using a 5 year 0% interest loan from the dealer. I had the cash in the bank to buy it if I'd wanted to, but interest rates were around 7% at the time so using the 0% loan effectively gave me a 15% discount because I got to earn the interest on the value of the car instead of the dealer.
Managed debt is fine. It's only an issue if you over-extend yourself or you have a catastrophic change in circumstances (and you can insure your debt against that...)
Invariably people who use that service plan to spend 100% of their monthly income. Whenever you have an unexpected expense in that 12 month time frame and have to pay for that, then you can't make the payment on that loan.
Yup, debt is purposely setting you up to put you in exactly that bind, and then you owe the serious interest. Kind of a reverse lottery where you lose. It doesn't happen to everyone, but at scale, Life Happens, and a certain percentage of people will get behind and wind up paying huge interest, and there's the profit model.
Also, people are chronically up in arms about taxes, but here, they are signing up for voluntary taxes on everything. At least taxes buy something real, like roads, mostly reliably safe food supply, education, police, fire defense, etc., while interest just buys indulgence today then headaches tomorrow.
Interest is fine if you are creating an asset that create greater future value (e.g., building a business), or where the asset itself is a security (e.g., a house). But for transitory consumption, debt is a losing game. (I'm distinguishing debt from credit cards as a payment convenience paid every month - don't let them slide)
Hate to throw a variable into it, but I usually spend less than 50% of my income (after savings and retirment), and I still use BNPL and payment plans when I can get interest rates and fees for under 10%.
In America, the psychology and boom-bust cycle around every form of credit is really influenced by inequality.
Step 1: Create cashflow problems for poor people by delaying pay, but frontloading unexpected expenses (healthcare, education, repairing a broken car that gets you to work), making alternatives incredibly overpriced (renting vs owning a home), and adding extra fees for late payments overdrafts and similar. ("Being poor sure is expensive." [1])
Step 2: Expand access to credit in the name of equality. Sub-prime and aggressive lending products help people who are living inefficiently make better choices like buying a house, taking that job in the next town, getting a degree etc etc!
Step 3: New markets always mean (a) bigger interest rates being promised upfront, (b) borrowers who are less experienced with credit and (c) lenders who don't really know the nature of risks in he new market. This is a huge opportunity for middlemen to create products that are exploitative to the borrower (sandwich financing), to the lender (CDOs full of NINJA mortgages), or both -- so folks show up to do just that.
Just because you are financing, doesn’t mean you are buying things with money you don’t have, only financially illiterate people of a particularly dim nature would say that.
There are plenty of reasons to delay paying for things as much as possible, especially if the financing has zero cost. Say you bought a new £800 stand mixer on Black Friday. Splitting the costs in 3 allows you to deploy the funds elsewhere, such as investing in an index fund, buying bonds or put into a CD account or anything productive to offset some of the cost or if you are lucky, cover it. A dollar today is not the same as a dollar tomorrow.
Another common reason for that is to stretch your credit limit without affecting your credit score. Say your credit card has a £30k credit limit. There is an expensive 4-5 figure gift you want to buy for your girlfriend for Christmas or take an expensive holiday to some exotic location. You can afford it, but it’s going to cost a few months’ salary and a dip in your credit score. You can pay for your purchase with BNPL without leaving you nothing at the end of the next few months and have no impact on your credit score.
BNPL is a great financial buffer for everyone, as long as you have some baseline discipline to pay off what you owe.
> ay you bought a new £800 stand mixer on Black Friday. Splitting the costs in 3 allows you to deploy the funds elsewhere, such as investing in an index fund, buying bonds or put into a CD account or anything productive to offset some of the cost or if you are lucky, cover it.
Those 0% financing offers only exist because interest rates are extremely low. I don't know about others but you know what else is low these days? The return on my index funds. If I invest those £800 now, I miss out on what, £8 over the course of a year? Compounding that makes very little difference at retirement age but for many of us, the mental overhead to manage these loans and the chance of taking on too much (interest rates will go up again) and making a mistake is just not worth it. Besides, if you BNPL you wouldn't want to park that money somewhere volatile anyway, an index fund, what if interest rates rise and you need that money all of a sudden but your index fund didn't gain anything. All of a sudden you lost money. Maybe I just don't get it, I'm happy to learn if there's a flaw in my thinking here.
So you buy a stand mixer, make a bunch of dough, bake some bread and sell them. Plenty of ways to offset the cost. The how is not important, the important thing is you can. The worst it can happen is you have to pay exactly the labeled price some 3 months later.
If you're a business, I get it. Most people that are being targeted here though wouldn't fall into that category.
> The worst it can happen is you have to pay exactly the labeled price some 3 months later.
What if you parked the money and it lost value as I described? I think that's a worse case. So this only works if you hold on to the money in a place where it's guaranteed to increase in value (but interest rates are low) in which case the only upside is to offset inflation but I don't see how that would make a significant difference. If you're a business, sure but not for an individual.
If you parked the money and it lost value, it doesn't matter, because that's only relative to everything other than the stand mixer you bought. The price of the stand mixer is fixed at the time of purchase, it doesn't go up as time goes by.
I don't get it. If you bought the mixer and paid for it a year later but a year later when you have to fork over the money and it's suddenly not 800 bucks anymore but, say 750, you need another 50 bucks. So you spent 850 instead of 800, no?
The amount of what you owe is fixed at the time of a 0% interest BNPL purchase, just like a real purchase. Even if the interest rate is not 0, it’s still fixed.
It’s not a margin account where you have to call it if the value dips too low over time.
What in such simple concept is so hard for you to understand?
BNPL suggests that it's better to take the 0 percent and pay off the 800 bucks, say, 2 years later and park the money somewhere accrueing interest.
All I'm saying is if you're getting a 0 percent loan for the mixer, interest rates on your savings are not going to be great either and returns on index funds are not going to consistently go up either. It's not unlikely that you end up with your 800 bucks turning to 750 after 2 years but you still have to spend 800 for the mixer after 2 years. 800 you put in at the beginning, 50 you have to chip in at the end, you just paid 850 for that mixer.
> What in such simple concept is so hard for you to understand?
> 800 you put in at the beginning, 50 you have to chip in at the end, you just paid 850 for that mixer.
Honestly, if in 2 years you still haven't managed to save > $800 worth of your time with the stand mixer, you probably shouldn't focus on that $50 of depreciation.
The issue is that financing changes what is available in the marketplace for you to buy. There are cheap new cars that don't break down every year (ex. toyota hilux) that are not sold in the US. Because it's more profitable to finance you a 50k truck than a 20k truck.
The housing market works the same. If we didn't standardize fixed rate mortgages houses would be cheaper smaller and more available.
The Toyota Tacoma is pretty comparable to the international Hilux aside from powertrain (gas vs diesel) and a very small size difference. In theory you could probably get one for $30k.
> "But old cars break down and are expensive to get repaired" Yes, but you don't have money to pay someone else to repair it, old cars have cheap parts and are relatively simpler to repair, learn how to do it, you're not in a position to be fussy about what skills are beneath you if you can't pay someone else to do it, stop thinking so highly of yourself and get to it!
You're ignoring the "boots theory" [1]. A new or somewhat-recent used car is like the pair of boots of the story - the poor person that buys a trash barely roadworthy 2000$ car each year pays at least 20000$ over ten years plus whatever the extra cost of maintaining a trash car each year is, higher insurance rates, more fuel and has more trouble with unreliability and the followup costs (i.e. unplanned uber/whatever fees to get to work because the car broke down). Not to mention if they do repairs themselves, they need to have or acquire the skills and tools and have the time available for doing such repairs. Neither of this is cheap.
In contrast, the rich person who either buys a decent new/recent-used car or finances it pays roughly the same amount of money if he sells the car after these ten years, paid less for maintenance, insurance and fuel, had less issues getting to and from work and a higher quality of life.
The real problem is that a full time employed person in most Western countries can no longer afford a new Western-made car without going into serious amounts of debt. Cars have gotten too expensive and wages (especially after tax, rent and basic costs of life) have gotten too low - a complete turnaround from the Ford era whose principle it was that a worker should be able to afford the product he makes in a reasonable time!
I'm not entirely ignoring it, but I don't believe it holds true for things like cars. I've driven bangers my whole life, I mean really driven them to death, some to the point where they die on the highway, and I will do a quick inspection to decide whether I want to fix that or just have it towed direct to junk.
Now, cars are insanely taxes in Denmark, near 300%, and they lose about half their value the first year of ownership.
Every 2 years, there is a mandatory inspection of the car.
I buy a car with the following requirements: 1. My strong intuition that it can survive for 2 years with zero maintenance. 2. After 2 years, my TCO will be less than if I rented a new car. 3. It's freshly inspected so I don't need to worry about that for the next 2 years.
Sure, I get to drive old cars, but I bear zero risk, if I crash it, or someone drives into it, or I chose to use it as a ladder while wearing muddy boots (has happned) to reach something up high, I can do it, I can treat it as trash, it does not matter, it's not losing any value because I already wrote it off. A rental car, you can't destroy.. I feel having a car that I can destroy is worth more than driving a new car.
If, after 2 years, it looks like it can pass inspection, I try, and if it's cheap to fix, I fix what needs fixing, and drive another 2 years. This is a super-win situation, because then my yearly COO becomes about half of what it costs to rent.
If it can't pass inspection, I toss it, and buy a new one and I have "broken even" compared to renting.
I get the "don't worry about maintenance" perk of renting combined with "not getting in trouble if it's pretty beaten up when I'm done with it" perk of owning.
Sure, it means that I run a risk of a sudden breakdown, in that case, I'll get it towed (to junk or home to fix) and I'll have to take the bus, work from home or arrange a day off for fixing it, but it's been my experience that it almost never happens that a freshly inspected car fails randomly within the two years until next inspection.
> I'm not entirely ignoring it, but I don't believe it holds true for things like cars. I've driven bangers my whole life, I mean really driven them to death, some to the point where they die on the highway, and I will do a quick inspection to decide whether I want to fix that or just have it towed direct to junk.
Yeah, but you have the knowledge and skills that you can determine if a beater car is worth the effort. Most people, however, do not have either of these... they get shafted by car salespeople who just want to push cars off their lot and fleece people later-on for repairs.
And the problem just gets worse with more modern cars - I can fix up something like a Volkswagen T4 van or probably, if it comes around, a lot of shit on any 90s era car. But for anything more modern, particularly stuff where you need specialized diagnostic toolkits, 2000ish Renaults where you have to plan three to four hours for a headlight replacement [1] or built out of aluminium or worse, composite material? Fuck that, I'm out. Modern car construction has completely sacrificed repairability in favour of crash resistance, lighter weight and/or cheaper assembly.
Old French cars break down a lot and soon become worthless or a complete liability.
Old German cars break down less but cost a small fortune to repair when they do.
British cars such a Range Rovers and Jaguars can be problematic from day one and will continue to deteriorate thereafter.
Old Japanese cars tend to keep going forever.
There are a few outliers such as some older Fords that were over engineered but, generally speaking, observe the 4 points above and you won't go far wrong.
You might be subject to lesser risks, especially in a country like Denmark, but many people have at least some of the following risks of a car breaking down in the middle of the road:
1) collision. Simply being on a high speed road outside of your vehicle is one of the riskier things you can do in many parts of the world.
2) not being able to work and/or getting terminated from job
3) being stranded with young children
4) needing to be somewhere to take care of your dependents
As someone who only ever bought what you would describe as "trash" cars of up to 2000 Euros, let me give you some data.
Looking through my car repair/TCO excel file, I average to about 60 Euros per month in maintenance and repairs (that includes stuff like new tires every once in a while). Over the average lifetime of my cars (which is 5 years), that's 3600 Euros in repairs and maintenance. I regularly sell the cars for 500 Euros, so that's a TCO of ((2000-500)+3600) = 5100 Euros per vehicle, or about 1020 Euros per year.
The initial, 6-month manufacturer-suggested service for a new car alone is upwards of 2000 Euros, for a car that should not have and trouble. Most cars are nowadays impossible to repair yourself, or repair cheaply (new headlight bulb was 3 Euros before, now you have to change the whole 1300 Euro unit). But let's assume I'll have 150 Euros in maintenance per month... that's 9000 Euros. Depreciation over 5 years easily is a third of the vehicle's value, let's say 10000 Euros overall, on top of maintenance and repairs. Together, I get to a TCO per year of 3800 Euros, or a whopping 2780 Euros more!
Now, fuel efficiency. I drive about 25000 km/year. My clunkers consume - on average - 7.5 liters per 100 km - that's about 31.4 MPG. For something comparable, the manufacturer (if we want to believe them) currently lists about 5.8 liters per 100 km, or 40.6 MPG. This means that I could save 475 liters of fuel with a new car. A liter right now costs about 1.80 Euros, meaning I am leaving savings of 855 Euros on the table.
So ... I pay 2780 Euros more to save 855 Euros - BEFORE the extra cost of a loan to buy a new car ... NOT a good deal.
The boots theory does not really hold for mass produced items, including boots. A usable pair of cheaply made boots costs less than resoling a good pair of boots. I propose the Buzz Bissinger boots theory: Buzz is not rich because he buys fancy boots, Buzz buys fancy boots because he inherited a lot of money.
https://www.gq.com/story/buzz-bissinger-shopaholic-gucci-add...
The sweet spot in TCO for cars is generally (look at Edmunds numbers) a new compact in base trim. TCO will go up with a more expensive or "higher quality" car. If you are in the position between choosing to finance a new compact at low/reasonable interest rates or pay outright for a beater, the new car will be the better deal. A used compact is actually an OK compromise if you don't have money up front or want lower payments - a 5-year-old Corolla has slightly higher TCO than a new one, but not by that much.
Being able to pay on time for a compact car requires some basic financial stability but that's not "rich".
> A usable pair of cheaply made boots costs less than resoling a good pair of boots.
Yes, it does, but it's worse for everyone:
- those who make the shoes because the conditions under which clothing in general is made are horrible (see e.g. the numerous instances of fires in Bangladeshi factories)
- the environment because these cheap boots are made out of fossil resources, they have to be shipped around, and at the end of their life time they can't be recycled so they either end up in landfills or, worse, trash incinerators
- for the end user since shopping boots consumes time and effort
For cars, hell for virtually all mass produced items, the same principle applies. And it's only "cheaper" because a lot of the problematic factors involved are costs that are externalized.
Oh ok, I was wrong. Working people should spend more of their paychecks on boots to prevent fires in Bangladeshi factories, and then it will be more comfortable walking to work because they can't afford a car. And no shopping in your utopia either.
Working class people should have larger paychecks so that they can afford proper clothing.
Look up charts for wage development and minimum wage on one side, and charts for CEO pay and gini coefficients (wealth distribution) on the other, over the last 50 years. There you have the answer why a working class person can only afford crap shoes and beater cars.
But then they'll go shopping and burn more fossil fuels and buy more things that set Bangladeshi factories on fire! And throw their old things in trash incinerators! Shouldn't they just have to eat their old boots when they can't be resoled any more? By the way, where do you think new soles come from?
The boot theory is nonsense that at best only applies at a pretty narrow range of consumer goods - stuff that is barely fit for purpose vs stuff that is.
Cars are a great example because you pretty much can't save money spending more up front on one new car than on another new car, and there isn't even that big a difference in TCO between a new car and a comparable five-year-old car.
Working class people in the USA buy beater trucks to save over buying a new truck, which is a different trade, mostly because trucks are a working class Veblen good. They don't want to be seen in a Corolla.
> "But I need a car!" Yes, but you don't need a car you can't save up for, you need a car you CAN save up for.
How are you going to save up for a car if you can't drive to work? You certainly can't afford to move to one of the three places in the US with functioning public transport systems.
No, Americans are never sung that song, nor are we taught that debt is a bad thing, nor are we generally taught to save money by doing things like fixing our own cars. The societal focus is on maximizing income in your narrow employment, so that you can just buy new things and otherwise push your problems onto someone else.
And unfortunately, due to the overwhelming monetary inflation of our economy (which would otherwise experience strong price deflation due to technology and offshoring), taking on more debt is actually economically advantageous - you get to capture more of the classy handout that is the asset bubble.
In the last decade credit rampage has spread in Europe too, I still remember not long ago where the idea of buying things in installments seemed crazy to the average Italian. The only thing that gets a pass is a mortgage.
But buying a phone or computer in installments? How does that make sense?
You can't afford it, end of story.
I'm also not used to pay interests on my credit card, if I spend 1000 euros, at the end of the month takes away 1000 from my account and that's the end of story. Why would I pay interests on my daily finances, sounds crazy and a recipe for always having to worry about money.
> But buying a phone or computer in installments? How does that make sense?
> You can't afford it, end of story.
I'm not saying you are privileged, but I generally only hear this argument from people who have never been poor, or people in countries with functional social safety nets.
Having no computer, phone, car, or washing machine (or an extremely old one) can cost more money and time in the long run due to Capt. Samuel Vimes' boots theory of socioeconomic unfairness (https://moneywise.com/managing-money/budgeting/boots-theory-...).
For example, a lot of government paperwork is now online, if you have to do it at the local library now you have to spend the time to get there. Simple things like managing your passwords or personal documents is harder if you have to run your life from a thumb drive plugged into a public computer. If you have to use a commercial laundromat you will end up spending more money (not to mention time!) cleaning your clothes. If you have no car and can't afford to live in a walkable neighborhood you'll spend a good chunk of your life waiting for the bus. A car helps but a very old car eventually becomes a temperamental money sink that may also result in you being late for work which jeopardizes your income. Being poor is expensive and time-consuming in ways that people who have not been poor typically do not understand.
Of course many people go into debt to buy luxuries they do not need, and that is bad. But going into debt for items that save you time or money in the long run can be a financially sound decision.
I agree with all you say, but I don't see the connection between paying front up or in installments.
A decent laptop can be bought on craiglist or similar websites for 150/200$, and you can get a decent mid tier laptop from few years ago, a smartphone would be half of that.
Thus, where's the jump to buying a brand new computer in installments?
>Thus, where's the jump to buying a brand new computer in installments?
Sometimes you're "forced" to it. Me, a third-world student, buying a laptop expecting the thing to last at least 7 or 8 years before it becomes obsolete. Now, you have to drop something around 1000 USD when your monthly income from being a cashier at the local supermarket is 250ish.
Also (you can, but) you wouldn't be buying used because there are plenty of scammers around, no warranty in used electronics, and with such a large investment (4x your monthly salary) you become REAL risk-averse real fast. What do you do? You go to an appliances store and buy your new laptop in 18-24 instalments, with a 12-month warranty (or even more if the extra price for the extended time is worth it/low enough).
Guess from where I'm typing this and if there are any instalments left? :D
> I don't see the connection between paying front up or in installments
Paying up front typically means deferring the purchase until you can afford the full cost. If it takes you a year to save up for the car/laptop/washing machine then that means a year of dealing with the more expensive alternatives. In many cases those costs exceed a the interest on the loan, making it a financially sound decision to purchase the item in installments.
> A decent laptop can be bought on craiglist or similar websites for 150/200$
In my experience a craigslist computer is a crap shoot that is an irresponsible purchase unless you are experienced at repairing computers and keeping them going past end-of-life. The risk is just too great that it will not function or meet your needs which is not something you can afford. I'm not saying everyone needs the latest top-of-the-line MacBook, but the vast majority of people are better off buying refurbished and/or mid-level models that are not more than a few years old instead of a $150 craigslist special.
Ditto with cars. Unless you know what you're doing, trying to depend on the absolute cheapest car from craigslist will end up being far more expensive in terms of time and money than just getting a decent used car in the first place.
> If you don't have money for fast-food, then go to the grocery store and buy the ingredients yourself
If you're talking about the US, if you're poor the nearest grocery store will be miles away, dirty, and the prices will be a 50% markup over what people pay in nice neighborhoods. Also, McDonald's will sell you an entire meal for $3 and is down the street.
I was going to say the same. I suspect that anyone who believes that fast-food is more expensive than a grocery store has never lived in a poor neighborhood.
It's sometimes an emergency loan to get your car fixed or to get a replacement car, so that you don't get fired from the job you drive to, so that you have enough money to continue paying for a roof and food.
I personally hate debt and when possible I pay everything with cash up front.
My wife got pregnant, and our spending, specially on health was already sky high, so I did 5 months of overtime chasing a promised raise and possible promotion.
Then I got fired.
My last day of work was mid December. Child will be born soon. (Maybe even today, we are hoping for natural birth).
The medical crew we hired (back when I had a job and was chasing that promotion) want way more money than what I have left.
I will have to take a loan, because as far as I know I can't tell the baby to wait until I have a new job before coming out of the womb...
Need clothes, medicine, furniture, prepare the house (it is my first child, house is not kid friendly)
Also: I erased most of my savings buying a "cool" car and of course a lot of people criticized me for it.
What happened was:
1. My house is on the top of a huge hill in an rural area, only way to reach the house in practice is with a powerful car. The car I had before was barely powerful enough, if there was more people in the car it would fail to climb the hill.
2. Someone totalled the car I had, and my wife job was literally in another city, her workplace also in middle of nowhere.
3. I needed a new car urgently, options were: cheapest European or US cars were double the money I had saved. Asian cars (like Hyundai and Chinese ones) were 1.5 the money I had, but weaker that the totalled car, they certainly wouldn't climb the hill.
4. So I bought a used Mitsubishi Lancer. It is a cool flashy car? Yes it is. But it was 100% my savings (instead of 200%), powerful enough to climb the hill, and big enough to fit baby chair and all the stuff a baby needs. The corolla or the civic, used, were 200% my savings, new were 300% my savings.
So you can barely afford your own needs and have no savings, but you decide to have a child?.. No offense, I'm just curious about your thinking and priorities.
The person you are replying to had a job (likely in tech), a house, a car, and a chance at promotion when the child was conceived. That seems like a better position than most.
If your implied threshold for conceiving a child is that you must have acquired all of these things plus enough savings to weather unexpected medical events and extended job loss then that seems like a threshold that the majority of couples will not reach during their childbearing years.
See the SNL skit: Don't Buy Stuff https://www.youtube.com/watch?v=R3ZJKN_5M44 which advertises a self help financial book whose contents are "If you don't have the money, don't buy it"
Not having money, i.e. poverty, and how you have to balance needs/wants/now/future is bit more complicated than this. In the same way you can't tell an alcoholic to 'just stop drinking' or someone in an abusive relationship to 'just leave them'. Because there is more going on than a simple econ 101 decision process happening.
I always see articles like this and wonder what the big deal is... I frequently use PayPal Credit, store credit cards, and Affirm on larger purchases because I like being that much more liquid. Then I realize that I always use the 0% APR option and that I've paid exactly $0 of interest to all of these services. I couldn't imagine paying 12% APR for the privilege of owning a $1400 synthesizer much less for a delivery order of sandwiches at a house party (as mentioned elsewhere in this thread).
Side question: how are these services able to offer lower APRs than credit cards without collateral? Do they evaluate your creditworthiness on the basis of paying equal installments as opposed to revolving credit with a minimum payment? If so then how are they different from an old-fashioned personal loan from a bank?
There's "I use debt to buy things I can't afford", there's "I don't use debt to buy things I can't afford", and then there's "Yeah, I could totally drop cash on this but I'm going to take 0% debt just to avoid the liquid drain". If you're in that third category, you're just too far away from the first one to understand it very well. (In self discipline, not income. There's no amount of income itself that keeps you out of that first category!)
Nope, it doesn't make sense as you mentioned. But imagine that you were an investment bank with almost infinite cheap money has nowhere to go, you will probably put it into whatever dumb idea out there as long as there is a clear exit strategy. It's virtually exploiting those financially vulnerable ones by providing heavy incentive to lure them into using BNPL and bump up the share price so they can exit with profit. Even if it did not work out, it just a failed investment that can be written off.
But for those desperate users, as long as they can get what they want now, they don't really care whether if they can repay at all.
The fast fashion debate is similar to this. People who are against it say that it's environmental unsustainable and expensive to buy new clothes more frequently. People who like fast fashion respond that it's only rich people who have the luxury to buy durable, high quality clothing that lasts more than a season.
The pro fast fashion argument is that they have no choice. The reality is likely that they just like buying new clothes from these stores more frequently and can easily come up with a justification.
Time preference. People can't think in enough detail about the future or prefer pain later over pain now.
What's worse, the entire economy modifies itself to suit the needs of the borrowers. The price of goods increases for people who are paying cash because they are now competing with those who will borrow. Then policy is tailored to their needs via inflationary currency.
There is a reason ancient societies banned lending or had regular debt jubilees.
You sound like me, a friend who's not fun at objects party. All my friends told me I hold my debit card wrong, should get a nice promo credit card and spend like there's no tomorrow. All discipline they told me just eliminate 97% of the point of credit. "Someone else money" is the only appealing because the someone will take care of a lot of hustle for us.
The BNPL bubble burst in 2021 and it's been rapidly downhill since. Turns out that giving people free payment plans for everything only makes sense in a world with 0% interest rates. Who's surprised this blew up? Nobody hopefully.
> Turns out that giving people free payment plans for everything only makes sense in a world with 0% interest rates.
It makes sense even in a world of higher interest rates, at least for high-value goods - especially cars. Most car manufacturers have their own in-house banks and with these, direct access to the capital markets. For the manufacturer, it makes more profit to sell a car immediately after it is manufactured and have the income immediately on the books as well (as the in-house bank directly wires over the funds), simply because storing a car costs money for whatever storage option is used, for transferring it in and out of storage, and not to forget cars also lose value when stored over time, as many manufacturers are finding out at the moment as they try to complete the build of all the cars that had to be stored away during the lack of chips era.
Even for lower-value goods like cameras, phones and drones, this calculation applies, just without the in-house banks. When a piece of tech costs at least 600$ to manufacture and you can estimate a demand of tens of thousands of units (or hundreds of millions in the case of Samsung and Apple flagship phones), they absolutely need to push as much inventory as they can, simply because they are otherwise sitting on a very expensive time-bomb: once the next generation comes onto the market, the old generation stock will only be sellable with significant discounts.
It's virtually a credit card service issued without neither a foregoing credit check nor a physical card except that with a lower credit limit.
For people with enough financial capacity, it provides little value in comparison with credit card as they still have to pay the same amount but have to go through much more hustle. So, it's not attractive to those unless there were considerable incentives such as cashbacks.
But on the other hand, for those barely can make ends meet, it might be the only way to get something they want desperately as obviously they are highly unlikely to get a credit card or a personal loan. If something goes sideway, bad debts are most likely to occur.
For the merchants, if with the extra fees they still can make a profit, then they would be pretty happy to accept it as they get some extra sales which are unlikely to happen if no BNPL available.
For the BNPL providers, they can be there in the first place was because there was way too much cheap money in the market which had nowhere to go. So, if they can get enough customers and revenues quickly enough by providing considerable incentives, they can continue to get more and more investments. And if they can get to IPO stage, they can get more money by bumping up the share price by which the initial investor can exit with huge profits. Such game had been played for decades as so much money were printed from thin air.
Now things changed drastically as cheap even free money is no more...
“We found that most of the people that use buy now, pay later either don’t have or don’t use a credit card,” Marco Di Maggio, an economist at Harvard, told me. He said that Gen Z was skeptical of credit cards, possibly because many of them had seen their parents sink into debt.
This is always weird to me. It makes sense why Gen Z does this. But weird. I can get 2-4% back on all my purchases using my credit card, including protections against fraud, extra warranty, free lounge access at airports, and other perks.
I'd lose money if I used BNPL unless I can automatically buy government bonds that can pay more than 2-4% within the pay back period.
I wonder how much Gen Z is losing by using BNPL.
In all my years of using credit cards, I've never paid interest. I've always paid the full amount every month. Does Gen Z lack this discipline?
It's a hateful little piece of plastic. You carry it around in exchange for 2-4% cashback and fraud protection that should by rights apply to debit cards too, and the credit card company sits there hoping you give in to temptation and actually use the line of credit it represents, at which point they charge you usurious rates and distribute part of their loot to all the other poor schmucks they're conning.
I have one because my bank doesn't make a debit card with a spending limit over $2000, which isn't enough to cover all foreseeable emergencies. I hate it. I hate that I'm incentivised to carry it around, I hate the temptation it represents, I hate that normal debit cards don't get the "rewards" and "benefits" that function as bait on a hook.
Gen Z is an entire generation, and not one I belong to. However, I assume it's like every other generation in that it has people who are desperate, greedy, mentally incapable, or otherwise perfect victims for the bank to sink its teeth into.
> and the credit card company sits there hoping you give in to temptation and actually use the line of credit it represents, at which point they charge you usurious rates and distribute part of their loot to all the other poor schmucks they're conning.
It is kind of grim when I stop to think about how the probably several thousand dollars in cash-back bonuses I've received over the years of never paying a single cent of interest on my credit cards is probably subsidized by the people who do fall into this.
Most of the money made by credit card companies is from the transaction fees paid by the merchant. Credit card companies would still be immensely profitable without receiving a cent of interest.
[Edit] This was my understanding but some fact checking on Google proved the majority of income is from interest payments.
If you pay the statement balance due instead of the minimum payment due on your statements, you will end up paying no interest.
The sky high interest rates only apply to statement balances that go past due, and having past due debt is also strongly disincentivized because they are horrible for your credit score.
If you only spend money you actually have with a credit card, you will be fine while also enjoying the many benefits of having and using a credit card.
If everyone only spent money they had with a credit card, then credit cards would not try to lure you in with free stuff and there would be no reason to use one. I pay my balance on time and "enjoy" "many benefits" derived from the human suffering of the people who weren't rich or sane enough to do so.
Don't forget that there is no such thing as a free lunch, though. Credit card companies aren't charities!
In general all those perks are paid for by rather significant credit card processing fees, which you pay for yourself via increased product prices. Furthermore, their goal is to normalize the use of credit cards, in the hope that you'll eventually stumble and get screwed over by the interest fees.
Also, I think you are forgetting that Gen Z are literally kids. If they have a job at all, it'll be a parttime one with a very flexible contract. Without stable income, a credit card can easily become an unacceptable risk.
Ah, so now we've finally moved on from "Millennials are children" to "Gen Z are children". While it may still be true of some of them (I'm not sure exactly what the accepted bounds of "Gen Z" are these days), many are full-grown adults in their 20s with full-time jobs.
And many of those full-grown adults in their 20s with full-time jobs still can't afford to even rent a place without multiple roommates to share the cost with.
In general all those perks are paid for by rather significant credit card processing fees, which you pay for yourself via increased product prices.
The price is the same whether you pay via BNPL or credit card.
I get that merchants get charged by credit card companies. I also know that I'm not going to make a difference by boycotting credit card companies. I'd just lose out.
Also, BNPL companies charge merchants the same way credit card companies do.
Yeah. Stores increase prices to account for the higher transaction fees required to support giving CC users 2-4% cashback. Frankly CC reward schemes should be banned. It's just another shitty way for the poor to subsidize the middle class.
I think you are forgetting that Gen Z are not literally kids, they are just forced to live as such by the fact that being an adult with its own house and family has become prohibitively expensive.
I'm 30 and never had a credit card. Always felt like an extra layer of complication I don't need. I have enough money, I'd prefer to directly spend it. With a credit card there'd always be a nagging feeling some payment would be missed or something would go wrong and all of a sudden I'd be hit with interest charges.
Wow. I know HN hates Amazon, but as an example, the Amazon Prime cards give 5% back on everything bought on Amazon and at WholeFoods. That's not insignificant.
Also, if you did happen to miss payment because you forgot, 1 mos. of interest really isn't very much and certainly isn't the end of the world. The problem with CCs is when people don't pay them off and continue to put more and more charges on them. That's when things really add up.
Finally, that extra layer of separation between my money and the merchant/card thief is a good thing. CC gets stolen and I never lose possession of my money. Debit card gets stolen, and no matter how fast they reverse the charges, there's still a point where I lost possession.
This is a very US specific thing and even there I'm not sure it's true.
In Europe credit-card usage is much lower, and card security is much higher for both types of cards. We've had chip and pin protected cards for many many years, while the US only caught on in the last few years.
Is there objective data that US debit cards have more fraud impact for their users? Or is this really more a PR story from credit card companies?
I’m not sure about relative fraud numbers, but the fraud refund differences are real. With a credit card they will refund you basically no matter what. With a debit card it’s much more hit or miss - I recently had 3 fraudulent transactions on my debit card for about $100 each and they refunded only one of them.
That’s crazy if you think about it - you give your card around to many people and any of them can write it down and use it.
In the US the only sensible thing to do is to use your credit card for everything and keep your savings tucked in an account which doesn’t have a card at all, nor a checking account tied to it. Then maybe a small checking account at some other bank for rare times you need cash.
I've had my chip-and-pin debit card stolen and used many times, never once had a fraudulent transaction refused a refund. And it always is resolved in less than a day.
>Is there objective data that US debit cards have more fraud impact for their users?
Debit card fraud is rampant here in the USA. I cannot think of anyone I know personally who has not been a victim of debit and credit card fraud at least once (most have been hit multiple times). The difference usually is that in the case of credit card fraud, you go to charge something, and your card doesn't work. You call up only to find out your credit card has been frozen due to a pattern of suspicious purchasing behavior in some distant state. Credit card companies are very diligent about this because it is their money on the line. When it comes to debit card fraud you only find out about it when you check your account and see your balance decimated or a list of phony charges that you didn't authorize. In the case of credit cards, you aren't responsible for paying the phony charges. In the case of debit cards, you are usually just out the money. It is very common here.
> Is there objective data that US debit cards have more fraud impact for their users?
Depends how tightly someones runs their bank account. A fraudulent charge could come at a bad time and trigger your mortgage payment to fail because of insufficient funds. Though, most bank accounts offer overdraft protection, which is really just an available loan that is automatically taken.
For me, very few charges come directly out of my bank account. Everything else goes through a CC so I can review prior to paying each month.
In some ways it's even more expensive to remain "credit invisible" because of the security deposits now needed when you set up utilities, getting a mobile number, applying for an apartment rental, etc.
Building up a strong FICO score is the easiest thing with the exact mindset of OP with effectively the same amount of friction thanks to the "miracle" of autopay.
I’ll say I’ve never had this issue with credit unions I belong to. Just give the fraud department a call and within maybe half an hour the money is back in my account
You have me curious. What payment methods do you usually use? I just envision a life without credit cards having a bit of extra friction once in a while.
Do you ever run into transactions that can't be completed with alternate payment methods? For example, I used to see hotels state that they only accept credit cards (and explicitly exclude debit cards) for checking into a room.
Same. But I also never had problem with payment (I cancelled[or returned] purchase less than 4 times in my life, I can only thinking 1 or 2). Almost all credit card benefits are even out the production of incentives it drives. It's hard to prove if you spend 5% more with 3% cash back or not.
> I've always paid the full amount every month. Does Gen Z lack this discipline?
I'm not sure it's a Gen Z thing - credit cards were always subsidised by those who "lack the discipline". If everyone paid on time all the time they wouldn't give anyone an interest-free period.
And in fact the banks (to include credit card companies) do love people who pay on time every time by giving better credit scores to the people who do.
Meanwhile, people who only pay the minimum due end up carrying past due debt and get bad credit scores from the banks. A bad credit score in turn means the banks won't lend money as much or as easily to such people.
The ideal debtor is one who carries debt and proceeds to pay it off on time every time. You will have a stratospheric credit score and banks will be begging to lend you money.
It really depends on the card issuer, as different card issuers have different credit profiles. American express, for example, infamously have charge cards that you must pay in full every month, and generally have a prime to super-prime profile, so they make much more money in interchange than in interest. Other banks with more sub-prime profiles (Capital One, BoA?, etc) make much more in interest than interchange.
I feel that an astonishing number of people simply don't understand how credit and credit cards work, don't put in any effort to learn (understanding credit and debt is a critical life skill), and consequently blacklist what is unknown from their lives (eg: the Gen Z example).
People falling into financial ruin isn't a fault of credit cards or carrying debt, it's either driven by fiscal irresponsibility (which can be rectified with honest effort) or just plain bad luck (which can happen to anyone, fiscally disciplined or otherwise).
This article is so weak. It doesn't provide any actual reasons for why BNPL is a bubble nor why such a supposed bubble is about to burst. Seriously quotes TikTokers who are probably just paid shills for the company.
There are real issues with BNPL, mostly extremely loose underwriting in the pursuit of growth, but realistically it's functionally no different than a credit card. People actually interested in this topic should look at the CFPB's recent report on the subject and at the quarterly reports for Affirm/Upstart/Square/etc.
Also, this same piece has been posted like 5 times in the past few days and only now has it hit the front page, it's definitely weird submitters want HN to read the article so badly. Flagged.
> It doesn't provide any actual reasons for why BNPL is a bubble nor why such a supposed bubble is about to burst.
I'll provide one: it only made any significant sense in the near-zero interest rate levels we had last year. "Split it into four payments for $0 fee" is attractive. Much less so when there's a fee; Amazon's BNPL via Affirm is now up to 10-30% APR from the previous 0%.
At those rates, people just put it on a credit card.
I see BNPL companies as having two types of customers: those that can't afford the full price and want to pay over time, those that read the terms closely and realized the deal is too good not to take.
I took out a number of BNPL loans last year and it was never because I couldn't pay the full price but rather if I was getting the money at 0%, "free money". But I was never the target customer of these places, I was just taking advantage of very good terms.
Now that Affirm (and I assume most other places) are charging a floor rate of 10%, that second group of customers are no longer customers. I'm not sure how significant this group is but I'm sure it's not an insignificant number. Since these places make most of their money on transaction fees rather than rate premiums and fees on the back end, this could really put a dent in their business.
Maybe I just haven't had the opportunity to buy any big ticket items with BNPL, but the few times I tried it (trying to do the "free money" thing, getting a bit more interest in my HYSA by amortizing the total payment out over time), it just created kind of a financial tracking nightmare. I'd get flurries of emails about how my "pay in 4" payment was about to process....for $13. Trying to keep track of all that for a few pennies became too difficult (matching up which purchase each micropayment was from), although those pennies add up for larger purchases indeed!
But for a floor rate of 10%, BNPL is just a less terrible credit card, not a good deal :(
This is my take too. A $10,000 purchase on 0% interest for a year earns you ~$400 in interesting from a money market fund or whatever. I'm in a high tax bracket so $160 of that goes to the government. So even for a large purchase I net $240 in a year. Hooray.
Decrease the total cost of things purchased in this manner or increase the number of different things to track (or both) and suddenly I'm paying quite a bit more in additional mental energy than I benefit in cash.
The only place where this makes sense (IMO) is when you buy a new car and can get 0% and no payments for more than a year
The nice thing about a credit card rewards program is that it requires zero mental effort. Some people like spending more effort to do churning or whatever, but I make the same computation in that case and conclude that the extra money isn't worth my time.
Paying without a credit card is just supporting the credit card fees of those who do pay with one. The price is the same, but you often get 2 or even 3% cash back (depending on offers).
Anyone financially responsible (i.e. that won't get enticed into carrying a balance by the opportunity to get cash back) is leaving money on the table by not using a credit card (with good rewards).
The BNPL schemes are targeting low income customers who either can't or won't use credit cards.
The frequent little payments is a "feature". If you can't handle a $200/mo credit card bill, getting emails for $8 here or $11 there is probably easier.
Similarly I've used BNPL products to buy things like car tyres because they don't cost me anything (well - okay, the cost is borne by the seller, so presumably they bump the prices up a bit across the board, but you know what I mean), not because I didn't have the money. Generally it was things like "half now half next month".
The thing is, doing stuff like that - taking on debt and paying it - builds up your credit score. My credit score was awful after some youthful indiscretions with bank loans and credit cards, but after borrowing (and paying back) a total of about ten grand over as many years I've got a credit rating like a Swiss bank.
Did that actually work? I just assumed they would find a way to charge me 'interest' by having processing fees or some other scam, so I never used them.
I never used one, but I'd assume they're as good at following the plan as you are (I had read some articles that said some of these lenders operate on voluntary repayment, no fees, no collections, but I don't know how widespread that was), but interest rate arbitrage has to be considered against the effort.
It's much less effort to use my everything credit card and get my 2% discount than to do a 0% apr over four months (or whatever), setup a new account, setup payment at that new account, remember to make the payments, etc and for what? Short term bank interest on most of my purchases would be peanuts, especially since I wasn't getting 2% bank interest when BNPL was at 0%.
I imagine there are a number of those out there, but I've taken many BNPL deals that were zero fee, zero interest. It truly worked out to be the exact same cost whether I paid upfront or took the BNPL.
I imagine the BNPL people made their money from the same kind of CC fee models and from customers who ended up not being able to stay within the 0% timeline. From my memory it usually had some big fines or interest rates if you couldn't make the payments.
I always imagined that the companies using the service at checkout would give the BNPL company a percentage of the sale if the customer used the service. Even if the price is the same for the consumer, BNPL companies could argue that they generated sales that might've backed out had they not been available.
This is exactly how they work. I work for an ecommerce company that offers one of these services. We pay them a small percentage and they take on the liability to collect payment and handle disputes. We already pay another percentage to try and detect fraud for a certain amount of our transactions. By letting the BNPL company act as the purchaser on behalf of the customer, we can offer them a cut of what we would have paid for fraud detection.
Exactly. The retailer pays the interest (a small marketing cost to increase customer spend), which is made into an offering to financiers of a low risk loan trenches, with absurdly high interest rate (20%+ APR).
- Whenever you see a BNPL offer for 0% it means the merchant is paying the interest on behalf of the consumer. The merchants are in charge of making that decision, not Affirm.
Affirm earns interest on every loan. Many merchants choose to assume that cost because it greatly increases conversion rates. Replies to my comment only confirm this fact (“I only ever used BNPL cause I got 0%!”)
- "attractiveness" is in the eye of the beholder. You may be unwilling to pay a fee, many other people are. Plenty of people roll over their CC balances each month and pay even higher APRs.
- Interest rates have little effect on BNPL financing; many can either lend out of their bank account due to their size, or they sell the loans immediately upon origination and thus pass the risk of changing interest rate environments onto another party.
"You may be unwilling to pay a fee, many other people are. Plenty of people roll over their CC balances each month and pay even higher APRs."
I get the sense you're not thinking in the margin. This isn't a question of whether "some people" will pay the fee, it's about the fact that as soon as the fee is greater than zero, "some people" won't, and the rate of that will go up as the fee goes up. This isn't a binary thing where suddenly the rate goes from 0% to 100%.
1% or 2% doesn't mean much to me and my household budget, but for these businesses such percentage differences are generally the difference between profit or loss.
> Whenever you see a BNPL offer for 0% it means the merchant is paying the interest on behalf of the consumer.
I don’t think this is true - the merchant pays a transaction fee (around 3-5%) with companies like Affirm or Klarna, which is not much different than typical credit card fees. The merchant is not paying an interest rate or liable to pay more if the customer fails to pay on time.
You’re on the right track, but have the wrong specifics.
A merchant accepting card payments might pay “sticker rate” for processing, 3%, at the outset; but, they eventually get IC+ pricing as their volume increases. This might be closer to 1-2%.
If they pay 5% to a BNPL, that extra 2-4% is meant to cover the interest of the “loan” if the customer doesn’t pay back on schedule.
Sure but the merchant isn’t literally paying interest - yes they get charged a fee which helps subsidize an interest-free loan, but that fee is not interest nor is the merchant party to any loans that the consumer enters. The merchant gets paid more or less immediately minus a fee - similar to how a credit card transaction works.
Merchants pay the interest because they see larger basket amounts and therefore more revenue. If the cost to them increases then it can reach a point where it's no longer attractive.
I disagree and I think interest rates have a huge impact on these places. Just look at Affirm that used to offer 0% and is now offering 10% at minimum.
As far as "attractiveness", I really see two groups here. You have one that legit cannot afford the full price and are taking out this loan as a traditional loan, within that group "attractiveness" is in the eye of the beholder. However the other group is people that can very much afford the product but see the magic "0%" rate, for this group the only "attractive" rate is 0, any higher and they will not use the service.
I don't think you make a convincing argument. Anecdotally, I've only ever used Affirm when they offer me 0% interest. Paying 26% or more for a soundbar over six months is not attractive.
I never used one of these, partly because it seemed like it would create significant friction if I needed to return the item.
What is the return/refund process like with these services? I assume they get the refund from the merchant and then disburse your part of it to you? Does it go smoothly, or do you have to chase things down?
Functionally it is substantially different to a credit card. The value of BNPL to businesses is the way that it changes the basis for a customer’s purchase decision, a credit card does not have that same dynamic.
The underlying credit mechanism might be a lot like a credit card but the way borrowers interact with it, which is what matters, is very different. The mechanics of a mortgage and a car loan are very similar but that doesn’t make a mortgage a car loan and vice versa.
BNPL is a bubble. BNPL is just like ride-sharing circa 2016, as soon as cheap money stops and regulation arrives, the bottom falls out and people realise that BNPL is just new paint on an old idea and should be valued as such.
BNPL will not die because it has existed for decades, and it is a valuable service to a subset of consumers but when you set aside all of the tech-boom hype… it’s just a boring financial service with healthy-but-unremarkable profit opportunities.
I see your point in saying that credit cards and BNPL are different. But I think its very inaccurate to say that credit cards do not change customer's purchase decisions. Pre-credit cards you had to pay in cash or a check. Cash has the excellent value of you can't spend more than you brought with you. It limits spending to a pre-thought out amount.
Ever go out on the town and realize you spent more than you expected. Or look at your balance at the end of the month and have to look through to figure out how you spent $1000 more than normal? (I know I have, maybe I'm the weird one, but I doubt it).
And I think in that way, BNPL does have similarities. It allows you to spend more than you planned because you don't have to think about your limitations in the moment.
A credit card is a long term commitment that integrates into your personal finance life, it’s a big decision you make once and can benefit from the broader finance system — e.g: you can refinance, you have legal rights (jurisdiction dependent). A credit card is a tool for the buyer.
BNPL is a product that merchants pay for because it increases their conversion rate: customers who wouldn’t otherwise buy something, will buy it, by clicking a button and entering into a financial agreement at checkout.
BNPL has been around for decades, the innovation of digital BNPL is in making it so easy for someone to walk into a financial commitment. For example, BNPL is very effective for fashion e-commerce, a market where it’s normal for a customer to fill their basket with products and then whittle it down to stay within their budget at checkout: BNPL is an antidote to that, it tells the consumer, “you don’t need to stay in budget! Just pay for it in future!”.
> BNPL is a product that merchants pay for because it increases their conversion rate: customers who wouldn’t otherwise buy something, will buy it, by clicking a button and entering into a financial agreement at checkout.
We've had BNPL for long time here in Central America and South America. In this side of the world, it's also the merchants that pay higher credit card processing fees for accepting BNPL payments.
What's curious is that BNPL in Central and South America is actually provided by the plain old banks or credit card issuers themselves. They are also 0% interest (Tasa 0/Cuotas/Visacuotas) and can be split in 3 up to 24 months depending on the purchase.
They are quite handy for larger than normal purchases, like an unexpected car repair or a tire change. But they can also be used for vacations, iPhones, laptops, furniture, appliance. In some countries you can even split a fast food meal in 0% installments.
BNPL usually breaks purchases up into discrete monthly payments up-front at checkout. Whereas your credit card lumps it together into one balance, which you can pay over time.
BNPL is simply credit card with a dark pattern. Psychologically it is easier to justify 25/months for 4 months than it is to justify 100 at once (even knowing you'll pay it back later in installments)
When done correctly, the underwriting is actually significantly better as it's done on a per-transaction basis, incorporating the item itself (ring purchases are significantly more risky to finance than sneaker purchases). You can also incrementally dole out a credit limit, rather than giving someone a $10k threshold upfront without any veto power over how they use that amount.
That being said, there are a ton of hucksters in the industry and I suspect we'll see most of them wash out in the next few years :)
BNPL is just a non-asset-backed sub-prime loan. We've seen this movie before and how it ends. BNPL firms can't survive a recession or higher consumer delinquencies.
LoanS. And most are small and very short term (4 payments). The risk from defaults isn't as worse as for a auto-loan lender, or a mortgage lender, or even a CC lender (as underwriting is done on a per-purchase base, the total amount underwritten per user is much smaller than a typical CC)
The difference is that credit cards are not almost exclusively sub-prime loans and are reported on the consumer's credit. Many companies have largely prime or super-prime credit portfolios, and the industry is well-developed to serve these customers (Amex makes much more money from interchange than from interest, for example, and even sub-prime borrowers have tight control over their credit portfolio).
What is the argument against BNPL? It’s like credit cards isn’t it? Instead of borrowing from credit card companies some folks are borrowing from the BNPL companies. Is the worry that these people are over extended? Is there over exuberance in n that space and no checks on who to lend money and how much?
The author is confused about credit terms that have existed for decades. "Layaway" is when the retailer puts the product aside (won't sell it to another customer), holding it in the warehouse while the customer makes payments until the product has been paid for and is then delivered.
It makes (some sort of) sense for a capital purchase like furniture: furnture sells slowly; the retailer has to buy stock so there is a selection for the customer to choose from, ad is an expensive purchase for the customer.
It makes no sense for a sandwich (as the article says, `Putting a banh mi on layaway—this is the world that “buy now, pay later” programs have wrought.'). This is simply buying on ordinary credit.
> they bought enough Peloton products to account for 30 percent of Affirm’s revenue
Funny given the hundreds of comments on HN, reddit, and elsewhere about how Pelton is a status symbol and/or people who don't like Peloton just aren't wealthy enough to afford one or whatever. (Including on MacRumors, since Apple was rumored to be considering buying Peloton at one point.)
What absolutely blew my mind about this article is how it considers being in debt a norm. An unspeakable rule of sorts to not even try to manage your finances and save up and all that. Like wtf? How the hell do you function in society if you can't afford groceries and have to buy them on credit? The even more perplexing thing, to me, is why it's so common among Americans to pay for things with credit cards when they have enough money in their account. I'm almost 30 and I've never had a single credit card in my life. Being constantly indebted to someone like that would be a nightmare for me.
I am an American in my 40s and I pay everything on my credit card. All of my reoccurring bills: childcare, mobile phone, internet, utilities, etc are on my credit as are all purchases at stores/restaurants. I pay the balance every month. I end up with several free flights or hotel stays each year by employing this strategy. Added bonus is that if there is fraud, no money has left my bank account (this happened to me in the past year).
I just pay my credit card balance every week. Using a credit card and paying it very often means that my credit score is excellent, which results better deals for my mortgage and also better credit cards with great rewards and no fees. Credit cards also allow you to dispute transactions in cases of fraud, which you can't do with debit cards. If you have a healthy relationship with credit, not having a credit card is actually a much worse deal.
I'd say traditional layaway was far more risky. You'd put money away with the shop and if that shop went bankrupt before you paid your last installment, you'd be out of the money and not get the item either.
Repackaging BNPL loans into financial instruments (reminds me of 2008) will make it even worse when this house of cards collapses.
When credit is not priced to risk is when we get distortions that lead to systemic risk as the fall of a single entity like
Since companies that repackage debt and sell it off for suckers to buy there is 0% interest in doing proper credit checks. They just want to generate as much business as they can to make their return on selling the crap to other suckers.
It's 2008 all over again but with consumer credit this time instead of mortgages.
Oh definitely but it's also going to kill credit cards dead.
Why would I use a 30% interest rate credit card with 1 month interest free when I can get 3 months interest free or spread it out for like 5%? I just wouldn't, credit cards are absolute trash in comparison.
I never take the interest option but I find the 3 month options really useful for spreading payments.
One of the valid reasons for using BNPL is furniture purchases - I don't want to pay 1000 bucks upfront for shit that might be broken or not delivered on time. Although that depends on sellers integrating BNPL and being fine with it. And still doesn't justify a 46B valuation.
It’d potentially be a hassle, but I think perhaps by putting enough of there expenses on bnpl that one could potentially make a bit of interest thanks to the current rate environment.
[slightly-off-topic] Inb4: discipline, you're holding it wrong blah blah. I'm not in the country where credit score sounds like a moral, but my middle class friends already adopt this mindset .. now I'm not fun at party, it's sick! "use credit like it is debit" .. okay what's the point then.
Some folks say consumers should never take on debt for purchases, when they can save up instead. Others point out that it’s unavoidable in some cases. You may need a car to get to your job, meaning the asset you purchased creates value that helps you pay for it.
And yet others point out that you shouldn’t be financing food delivery. If you can’t afford that delivery now, then you probably can’t afford it spread over 12 months.
But ultimately this comes down to risk vs reward inherent in any financial transaction. The amount of leverage each is person is willing to take depends on their risk appetite. And everyone’s risk appetite is different. The folks frustrated with those who take out a lot of debt can’t fathom why others have greater risk appetite. The folks who do take that debt can’t fathom what’s wrong with doing so when it’s within their appetite.
That’s it, that’s the thread.