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With the current inflation figures, it might actually be a smart move. If the interest charged on the loan is less than inflation, then it makes sense for the c

With the current inflation figures, it might actually be a smart move. If the interest charged on the loan is less than inflation, then it makes sense for the consumer to borrow. The company makes a nominal profit on the loan but a net loss in terms of buying power; similar mistake made by SVB; tomorrow-money is not worth the same as today-money. Since 2008, the Fed has been paying interest on deposits using newly issued currency. That free money will keep entering the economy and cause inflation. The higher they raise the rates, the more free money will enter the economy.

ollien 4y ago
From the article > “While a pay-in-four plan doesn’t usually charge interest, longer-term BNPL plans may charge an annual percentage rate up to 30%,” an article in Nerdwallet noted in 2022. “Fees, like for late or rescheduled payments, range from $1 to $10 and are sometimes capped at 25% of the purchase value, depending on the company.” So I guess if you pay in a four-month-installment on time, it could make sense, but that seems like a super risky gamble.
- jongjong 4y ago
  A few months ago, I bought a car with a loan. I was surprised to learn that essentially all lenders offer a fixed 8% interest rate... When annual inflation is at least 10% in my country and reserve bank interest rates are on the rise. If it was a variable interest rate, that would present some risk. But it's not even the case. It's literally a fixed 8% annual rate over 5 years (by which point the loan will have been fully paid). So assuming that I can keep my income in line with inflation, it ends up becoming easier to repay my loan as inflation progresses. It's not quite the same situation for people with real estate mortgages as their rate is variable (or fixed only for a couple of years; so not really fixed when you consider that the loan is 20 to 30 years...) and their repayments increase along with the reserve bank interest rates. My repayments are constant and my debt is being inflated away as we speak. I bought a basic/small, but good quality car as I think it will hold its value well due to its focus on utility and fuel (cost) efficiency.
- toast0 4y ago
  If you have the $10 for lunch, you can either pay in cash, or put it into your buy now pay later slush fund and pay on time. There's no fiscal risk, only behavioral risk. Ally Bank currently offers 4% apy interest on a Money Market Savings, maybe you can find similar from a better bank. 4% apy over the term isn't much, but it's certainly fiscally better than paying cash today.
smcl 4y ago
I really don't think this is down to people who could otherwise afford their groceries deliberately making a savvy financial decision to counter inflation. It'll unfortunately just be folks who need (say) $100 but don't have it on hand when they need to go grocery shopping
SkipperCat 4y ago
Sadly, I don't think people are doing this as an arbitrage using the time value of money, they're just broke.
lm28469 4y ago
> With the current inflation figures, it might actually be a smart move. If the interest charged on the loan is less than inflation, then it makes sense for the consumer to borrow. This isn't some mastermind long term plan to gain a few cents over years. It just means more and more people can't afford basic necessities, it's the case pretty much everywhere in the west, food banks are busier than ever this alone is a clear signal.
Cthulhu_ 4y ago
This would only be viable if it's a longer-term loan, these are equivalent to payday loans - you'll get fucked over hard if you fail to make the payments in time.
__derek__ 4y ago
> Since 2008, the Fed has been paying interest on deposits using newly issued currency. That free money will keep entering the economy and cause inflation. The higher they raise the rates, the more free money will enter the economy. This idea is an example of Neo-Fisherism.[1] It's not really a mainstream view, but Erdogan's central bank has been trying it out (cutting rates to ease inflation).[2] It hasn't exactly worked as he expected.[3] [1]: https://www.stlouisfed.org/publications/regional-economist/july-2016/neo-fisherism-a-radical-idea-or-the-most-obvious-solution-to-the-low-inflation-problem https://www.stlouisfed.org/publications/regional-economist/j... [2]: https://www.economist.com/the-economist-explains/2022/01/27/is-recep-tayyip-erdogans-monetary-policy-as-mad-as-it-seems https://www.economist.com/the-economist-explains/2022/01/27/... [3]: https://tradingeconomics.com/turkey/inflation-cpi https://tradingeconomics.com/turkey/inflation-cpi
- deleted 4y ago
  [deleted]
ryandrake 4y ago
This comment is pretty much Peak HN. The article is about people who are, in general, financially not well off and likely living paycheck to paycheck: > People who use BNPL for purchases tend to be more financially distressed than nonusers, according to a March report by the Consumer Financial Protection Bureau. They’re also more likely to be an active user of other credit products such as payday loans and credit cards, the report added. HN comment: "This is a smart way to hedge interest rates vs. inflation risk in their portfolios!" I love this place sometimes :-D
- jongjong 4y ago
  Yes but it's good that for once the desperate move is not so reckless.

ollien 4y ago

From the article > “While a pay-in-four plan doesn’t usually charge interest, longer-term BNPL plans may charge an annual percentage rate up to 30%,” an article in Nerdwallet noted in 2022. “Fees, like for late or rescheduled payments, range from $1 to $10 and are sometimes capped at 25% of the purchase value, depending on the company.” So I guess if you pay in a four-month-installment on time, it could make sense, but that seems like a super risky gamble.

jongjong 4y ago
A few months ago, I bought a car with a loan. I was surprised to learn that essentially all lenders offer a fixed 8% interest rate... When annual inflation is at least 10% in my country and reserve bank interest rates are on the rise. If it was a variable interest rate, that would present some risk. But it's not even the case. It's literally a fixed 8% annual rate over 5 years (by which point the loan will have been fully paid). So assuming that I can keep my income in line with inflation, it ends up becoming easier to repay my loan as inflation progresses. It's not quite the same situation for people with real estate mortgages as their rate is variable (or fixed only for a couple of years; so not really fixed when you consider that the loan is 20 to 30 years...) and their repayments increase along with the reserve bank interest rates. My repayments are constant and my debt is being inflated away as we speak. I bought a basic/small, but good quality car as I think it will hold its value well due to its focus on utility and fuel (cost) efficiency.
toast0 4y ago
If you have the $10 for lunch, you can either pay in cash, or put it into your buy now pay later slush fund and pay on time. There's no fiscal risk, only behavioral risk. Ally Bank currently offers 4% apy interest on a Money Market Savings, maybe you can find similar from a better bank. 4% apy over the term isn't much, but it's certainly fiscally better than paying cash today.

smcl 4y ago

I really don't think this is down to people who could otherwise afford their groceries deliberately making a savvy financial decision to counter inflation. It'll unfortunately just be folks who need (say) $100 but don't have it on hand when they need to go grocery shopping

SkipperCat 4y ago

Sadly, I don't think people are doing this as an arbitrage using the time value of money, they're just broke.

lm28469 4y ago

> With the current inflation figures, it might actually be a smart move. If the interest charged on the loan is less than inflation, then it makes sense for the consumer to borrow. This isn't some mastermind long term plan to gain a few cents over years. It just means more and more people can't afford basic necessities, it's the case pretty much everywhere in the west, food banks are busier than ever this alone is a clear signal.

Cthulhu_ 4y ago

This would only be viable if it's a longer-term loan, these are equivalent to payday loans - you'll get fucked over hard if you fail to make the payments in time.

__derek__ 4y ago

> Since 2008, the Fed has been paying interest on deposits using newly issued currency. That free money will keep entering the economy and cause inflation. The higher they raise the rates, the more free money will enter the economy. This idea is an example of Neo-Fisherism.[1] It's not really a mainstream view, but Erdogan's central bank has been trying it out (cutting rates to ease inflation).[2] It hasn't exactly worked as he expected.[3] [1]: https://www.stlouisfed.org/publications/regional-economist/july-2016/neo-fisherism-a-radical-idea-or-the-most-obvious-solution-to-the-low-inflation-problem https://www.stlouisfed.org/publications/regional-economist/j... [2]: https://www.economist.com/the-economist-explains/2022/01/27/is-recep-tayyip-erdogans-monetary-policy-as-mad-as-it-seems https://www.economist.com/the-economist-explains/2022/01/27/... [3]: https://tradingeconomics.com/turkey/inflation-cpi https://tradingeconomics.com/turkey/inflation-cpi

deleted 4y ago
[deleted]

ryandrake 4y ago

This comment is pretty much Peak HN. The article is about people who are, in general, financially not well off and likely living paycheck to paycheck: > People who use BNPL for purchases tend to be more financially distressed than nonusers, according to a March report by the Consumer Financial Protection Bureau. They’re also more likely to be an active user of other credit products such as payday loans and credit cards, the report added. HN comment: "This is a smart way to hedge interest rates vs. inflation risk in their portfolios!" I love this place sometimes :-D

jongjong 4y ago
Yes but it's good that for once the desperate move is not so reckless.