6 ms·

In the datasets I use at work, I'm seeing these or similar credit not for emergency solutions, but rather for luxury consumption (the very poor aren't likely to

by Cd00d 7y ago

In the datasets I use at work, I'm seeing these or similar credit not for emergency solutions, but rather for luxury consumption (the very poor aren't likely to be in our panels). People are buying Peloton bikes, exotic vacations, and luxury purses, and hoping to pay that debt off in installment plans. I worry about when enough people hit the tipping point where their monthly minimums on deeply depreciated goods are too much to be able to make.

WhompingWindows 7y ago
Whoa, they are buying purses and vacations on these loans? Can you characterize the loans for me -- how much, what interest rate, what % of defaults do you see? I'd be very interested in a detailed analysis, that sounds very important.
- andyjsong 7y ago
  At least with the peloton purchase, it sounds like they are using Affirm. Generally if you have good credit, interest rate is zero. I've seen it on other high ticket items for sale online. In this case Affirm reduces the friction of buying higher priced products. The phone I'm typing on now was financed through symphony credit. Zero interest, and 36 monthly installments. I'm sure there are penalties if I don't pay every month, but it's on auto pay.
  - llamataboot 7y ago
    I don't know - I have seen lots of zero interest offers - but never from Affirm. I have a 750+ credit score and last time I looked at Affirm for something (a glowforge I think), interest rates offered were above 21%!
    - jcater 7y ago
      They do, as I bought a Peloton using Affirm. I was ready to pay cash, but they offered to do an interest free, no fee loan thru Affirm and split it across a couple of years. So I did it, because why not? I’m guessing this was probably an arrangement between Peloton and Affirm to where the former paid some fee to the latter, and all of that is absorbed as marketing overhead just to get more people buying bikes.
      - gonesilent 7y ago
        Correct any zero % rates are deals with the vendor. Affirm is just another predatory lender. Rates are sent to the user by who ever is giving the most kickback to affirm. Credit scores only give a yes/no on to next logic. My gf has just about zero credit history 690 and I am 790 we both get same offers at 18%
      - novok 7y ago
        That you pay for via inflated prices and fat profit margins.
        toast0 7y ago
        When the offer is $X now or $X/36 for 36 months, it's clear the seller is paying the financier, but that doesn't mean the seller will offer a discount for current payment.
        novok 7y ago
        Some do although, especially when you poke them about it. You see it often with cars where you offer all cash vs the %0 financing option, you can often get a discount that way. The $2000 in interest you were going to pay implicitly through the inflated price of the car goes away.
        jcater 7y ago
        Sure, but as there were no full payment discounts, full cash buyers subsidized my payment plan.
  - greenshackle2 7y ago
    That's not really what the article is talking about though. That kind of loan is nothing new. My parents were buying furniture on zero-interest installment plans decades ago. They offer zero-interest financing as an incentive to buy. The article is about installment plans replacing high interest payday loans, which is a whole other game.
    - WhompingWindows 7y ago
      How do they make money offering 0% financing on 36 month plans, let's say? Are they wagering that the cost of inflation/opportunity-cost of those dollars that the good people got is far outweighed by the benefits of people not paying on time? Seems wild that SO many of the customers wouldn't be able to pay on time...
  - subpixel 7y ago
    When the interest rate is zero it is because if you make a mistake and miss a payment, the claws come out and the penalty rate is high enough not only to pay for servicing all the loans which earn no money but also earn a profit. There is no free money.
gruez 7y ago
What dataset has this information? I haven't personally gotten a payday loan, but I don't think they ask what the money is going to be used for.
- Cd00d 7y ago
  We see the lender, not explicitly what was purchased. But, when you visit the lender's website you can see the pitch. See the pitch for the already mentioned Affirm: https://www.affirm.com/ https://www.affirm.com/
sokamyung 7y ago
Is there any way of telling from your dataset whether those loans are taken out by people who are in the USA on a limited or illegal basis and just end up just ditching their debt when they head back home?
starfallg 7y ago
There is a whole industry catering to people buying 'luxuries' on credit they can't really afford. Over here in the UK, the main culprit is a company called Bright House. They sell new household electronics and other goods on credit at around 70% to 100% APR. They exploit the rush you get when you buy something shiny and new. For a lot of their customers, it is the only way to kit out the house with new appliances and furniture. The ability to do that gives their customers a false sense of achievement and secuirity which is exactly what these lenders exploit.

by Cd00d 7y ago

WhompingWindows 7y ago

Whoa, they are buying purses and vacations on these loans? Can you characterize the loans for me -- how much, what interest rate, what % of defaults do you see? I'd be very interested in a detailed analysis, that sounds very important.

andyjsong 7y ago
At least with the peloton purchase, it sounds like they are using Affirm. Generally if you have good credit, interest rate is zero. I've seen it on other high ticket items for sale online. In this case Affirm reduces the friction of buying higher priced products. The phone I'm typing on now was financed through symphony credit. Zero interest, and 36 monthly installments. I'm sure there are penalties if I don't pay every month, but it's on auto pay.
- llamataboot 7y ago
  I don't know - I have seen lots of zero interest offers - but never from Affirm. I have a 750+ credit score and last time I looked at Affirm for something (a glowforge I think), interest rates offered were above 21%!
  - jcater 7y ago
    They do, as I bought a Peloton using Affirm. I was ready to pay cash, but they offered to do an interest free, no fee loan thru Affirm and split it across a couple of years. So I did it, because why not? I’m guessing this was probably an arrangement between Peloton and Affirm to where the former paid some fee to the latter, and all of that is absorbed as marketing overhead just to get more people buying bikes.
    - gonesilent 7y ago
      Correct any zero % rates are deals with the vendor. Affirm is just another predatory lender. Rates are sent to the user by who ever is giving the most kickback to affirm. Credit scores only give a yes/no on to next logic. My gf has just about zero credit history 690 and I am 790 we both get same offers at 18%
    - novok 7y ago
      That you pay for via inflated prices and fat profit margins.
      - toast0 7y ago
        When the offer is $X now or $X/36 for 36 months, it's clear the seller is paying the financier, but that doesn't mean the seller will offer a discount for current payment.
        novok 7y ago
        Some do although, especially when you poke them about it. You see it often with cars where you offer all cash vs the %0 financing option, you can often get a discount that way. The $2000 in interest you were going to pay implicitly through the inflated price of the car goes away.
      - jcater 7y ago
        Sure, but as there were no full payment discounts, full cash buyers subsidized my payment plan.
- greenshackle2 7y ago
  That's not really what the article is talking about though. That kind of loan is nothing new. My parents were buying furniture on zero-interest installment plans decades ago. They offer zero-interest financing as an incentive to buy. The article is about installment plans replacing high interest payday loans, which is a whole other game.
  - WhompingWindows 7y ago
    How do they make money offering 0% financing on 36 month plans, let's say? Are they wagering that the cost of inflation/opportunity-cost of those dollars that the good people got is far outweighed by the benefits of people not paying on time? Seems wild that SO many of the customers wouldn't be able to pay on time...
- subpixel 7y ago
  When the interest rate is zero it is because if you make a mistake and miss a payment, the claws come out and the penalty rate is high enough not only to pay for servicing all the loans which earn no money but also earn a profit. There is no free money.

gruez 7y ago

What dataset has this information? I haven't personally gotten a payday loan, but I don't think they ask what the money is going to be used for.

Cd00d 7y ago
We see the lender, not explicitly what was purchased. But, when you visit the lender's website you can see the pitch. See the pitch for the already mentioned Affirm: https://www.affirm.com/ https://www.affirm.com/

sokamyung 7y ago

Is there any way of telling from your dataset whether those loans are taken out by people who are in the USA on a limited or illegal basis and just end up just ditching their debt when they head back home?

starfallg 7y ago

There is a whole industry catering to people buying 'luxuries' on credit they can't really afford. Over here in the UK, the main culprit is a company called Bright House. They sell new household electronics and other goods on credit at around 70% to 100% APR. They exploit the rush you get when you buy something shiny and new. For a lot of their customers, it is the only way to kit out the house with new appliances and furniture. The ability to do that gives their customers a false sense of achievement and secuirity which is exactly what these lenders exploit.