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Is there some real material different between BNPL and a regular credit line? People often seem up in arms about BNPL, and I'm not clear on what is uniquely ins

Is there some real material different between BNPL and a regular credit line? People often seem up in arms about BNPL, and I'm not clear on what is uniquely insidious about it. Are the rates more predatory than a credit card, for instance?

SilasX 4y ago
This. It doesn't seem materially different from a credit card: if you pay within a certain window, no interest charges. It's just that BNPL is associated with being unable to afford it at the moment. And, not surprisingly, comedians used to make exactly that joke! When fast food chains like McDonald's started accepting credit cards, they would joke that if you pay with one, it's like you're saying you can't afford the meal all at once.
- tracker1 4y ago
  For me, it's clawing back a couple percent against the tx fee, they effectively charge every other customer.
sonotathrowaway 4y ago
I’ve heard that the form of credit that is used is somehow inferior, such that it reflects badly when judging your credit history. I have absolutely no idea if that is true or how I’d even ascertain the veracity, so don’t quote me.
thwayunion 4y ago
BNPL doesn't make much sense if you have access to typical quality credit lines. The x% cash back on groceries, plus a month of interest on deferred payment, is probably a better deal than the extra duration on the credit line you might get from BBPL. The major difference between some BNPL apps and credit cards is that the apps don't require a credit check. So, y'know, there's a certain segment of the market they are targeting. I think the ethics are fairly mixed -- access to capital is important and capital is expensive to some people for a really good reason. Of course there are fairness issues and predatory lenders, but there's a balance between the two concerns. But the risk modeling for CCs and BNPL are quite different. I expect there to be a BNPL blow-up at some point.
- teeray 4y ago
  > The major difference between some BNPL apps and credit cards is that the apps don't require a credit check. But why would they extend a one-off unsecured line of credit without a check of creditworthiness? It’s not like they can repo the groceries if you don’t pay.
jabroni_salad 4y ago
The offers I see are always 0% over 4 months. Napkin math for my credit card (22% APR) is 7.3% for that duration. I'm sure I did that wrong but I literally never carry a balance. The way this makes money is that they charge the merchant, and the hook for the merchant is that they are opening up their target demographics to include people that cannot otherwise afford the product. In that sense, I think BNPL competes with Layaway rather than with creditcards. More broadly, it's kind of a known factor that the middle class is shrinking and BNPL helps keep consumerism accessible to people that would otherwise be downgrading their lifestyle. The risk is that if you do not manage your finances very well you can get tricked into thinking you can afford things that you cannot and end up underwater to payments. It's like R-A-C but they won't send the sheriff to repossess your sofa.
ab0aa907 4y ago
I think the difference is their target market. Credit card companies usually target people who they think can make payments without too much stress. BNPL companies target people who are unlikely to afford the purchase and they will be in far worse position afterwards. Since these are high risk loans, so they come with even higher interest rates and fees too.
twelve40 4y ago
yes, there is a difference: * advertised as "no interest unlike credit cards" ("free") but if you are struggling, you will get hit with fees * less strict credit checks, so more struggling people can get it * attracts struggling people because if your credit is good and you are paying off, you will get much better deal with CCs in terms of cash back, miles, etc - nothing like that here * merchants actively promoting bnpl to entice struggling people to buy things they can't afford (merchants typically don't promote one-click-pay with specific credit cards) all these add up to heavily incentivizing broke people to become even more broke, more so than credit cards
starkparker 4y ago
Some, not all, BNPL lenders can get predatory with interest and fees if you don't pay the entire balance in 4 payments. For instance, Affirm strikes deals with retail partners that determine the interest rate (if any) on longer payment plans, which can go up to 30% APR vs. a 25% APR mean credit card rate for 650-700 credit scores. That variability also isn't always transparent to the buyer, who might not expect any interest if they used Affirm with another business that didn't require it. Zip, which is compatible with any payment that accepts Visa, charges a flat $1 payment fee per transaction and then a variable late-payment fee that depends on your state. Since more than a third of BNPL users in 2021 missed at least one payment - more than half of those under 40 did, and age demos make up a majority of BNPL users - these fees and rates are lucrative to the lenders.[1] BNPL lenders don't tend to check a buyer's credit, and those that do don't pull a full report, so it's more accessible than a credit card. But successful payments to a BNPL also don't get reported up to credit agencies, and missed payments can be (at least a third and up to three-quarters of those who missed a payment took a subsequent credit score hit), so paying down a BNPL plan exposes the buyer's credit score to risks with no potential benefit. Since the lack of credit check makes BNPLs attractive to demographics with poor credit scores - young, poor, and underbanked - even responsible usage of BNPLs do nothing to improve those scores.[1][2] Like with many low- or no-friction payment tools, BNPLs can facilitate overspending by people who already have poor credit, and the consequences of doing so can be dire to the overspender with few or no consequences to the BNPL lender. Planning a BNPL purchase isn't a problem, but point-of-sale BNPL options and BNPL instruments in debit-card form factors make debt an impulse buy in ways that credit cards can't do in some jurisdictions because they face regulations that BNPL lenders don't (yet[3]). People under the most pressure are buying necessities with BNPL and paying the BNPL debt down with credit card debt, a sort of worst-of-all-worlds scenario.[2] BNPL usage has only increased with inflation and spread to necessities, which in the long run benefits only BNPL lenders. BNPL users are juggling a mean BNPL balance of $665.[2] Another thing that raises hackles about BNPL lenders is how often they promote their services as a social good by pointing out how they avoid the predatory practices of credit cards. As for-profit institutions this can ring as dissonant to people who've experienced stress from debt, because it can suggest that providing low-friction debt to people who can't afford higher-friction debt is a moral imperative. The cringe of it expands when such platitudes are in the company's report to shareholders about its financial successes.[4] And on top of everything, the business model for BNPLs existed only with low/near-zero interest rates. Their value as businesses is evaporating as they face actually having to pay for the money that the lenders themselves are borrowing to fund BNPL transactions.[5] 1: https://www.creditkarma.com/about/commentary/buy-now-pay-later-surges-throughout-pandemic-consumers-credit-takes-a-hit https://www.creditkarma.com/about/commentary/buy-now-pay-lat... 2: https://www.creditkarma.com/about/commentary/consumers-rely-on-buy-now-pay-later-amid-record-inflation-use-credit-to-pay-it-off https://www.creditkarma.com/about/commentary/consumers-rely-... 3: https://www.reuters.com/business/finance/us-consumer-watchdog-plans-regulate-buy-now-pay-later-companies-2022-09-15/ https://www.reuters.com/business/finance/us-consumer-watchdo... 4: https://www.klarna.com/assets/sites/15/2022/02/27195201/Klarna-Full-Year-Results-2021-EN.pdf https://www.klarna.com/assets/sites/15/2022/02/27195201/Klar... 5: https://www.reuters.com/technology/buy-now-pay-later-business-model-faces-test-rates-rise-2022-06-10/ https://www.reuters.com/technology/buy-now-pay-later-busines...

SilasX 4y ago

This. It doesn't seem materially different from a credit card: if you pay within a certain window, no interest charges. It's just that BNPL is associated with being unable to afford it at the moment. And, not surprisingly, comedians used to make exactly that joke! When fast food chains like McDonald's started accepting credit cards, they would joke that if you pay with one, it's like you're saying you can't afford the meal all at once.

tracker1 4y ago
For me, it's clawing back a couple percent against the tx fee, they effectively charge every other customer.

sonotathrowaway 4y ago

I’ve heard that the form of credit that is used is somehow inferior, such that it reflects badly when judging your credit history. I have absolutely no idea if that is true or how I’d even ascertain the veracity, so don’t quote me.

thwayunion 4y ago

BNPL doesn't make much sense if you have access to typical quality credit lines. The x% cash back on groceries, plus a month of interest on deferred payment, is probably a better deal than the extra duration on the credit line you might get from BBPL. The major difference between some BNPL apps and credit cards is that the apps don't require a credit check. So, y'know, there's a certain segment of the market they are targeting. I think the ethics are fairly mixed -- access to capital is important and capital is expensive to some people for a really good reason. Of course there are fairness issues and predatory lenders, but there's a balance between the two concerns. But the risk modeling for CCs and BNPL are quite different. I expect there to be a BNPL blow-up at some point.

teeray 4y ago
> The major difference between some BNPL apps and credit cards is that the apps don't require a credit check. But why would they extend a one-off unsecured line of credit without a check of creditworthiness? It’s not like they can repo the groceries if you don’t pay.

jabroni_salad 4y ago

The offers I see are always 0% over 4 months. Napkin math for my credit card (22% APR) is 7.3% for that duration. I'm sure I did that wrong but I literally never carry a balance. The way this makes money is that they charge the merchant, and the hook for the merchant is that they are opening up their target demographics to include people that cannot otherwise afford the product. In that sense, I think BNPL competes with Layaway rather than with creditcards. More broadly, it's kind of a known factor that the middle class is shrinking and BNPL helps keep consumerism accessible to people that would otherwise be downgrading their lifestyle. The risk is that if you do not manage your finances very well you can get tricked into thinking you can afford things that you cannot and end up underwater to payments. It's like R-A-C but they won't send the sheriff to repossess your sofa.

ab0aa907 4y ago

I think the difference is their target market. Credit card companies usually target people who they think can make payments without too much stress. BNPL companies target people who are unlikely to afford the purchase and they will be in far worse position afterwards. Since these are high risk loans, so they come with even higher interest rates and fees too.

twelve40 4y ago

yes, there is a difference: * advertised as "no interest unlike credit cards" ("free") but if you are struggling, you will get hit with fees * less strict credit checks, so more struggling people can get it * attracts struggling people because if your credit is good and you are paying off, you will get much better deal with CCs in terms of cash back, miles, etc - nothing like that here * merchants actively promoting bnpl to entice struggling people to buy things they can't afford (merchants typically don't promote one-click-pay with specific credit cards) all these add up to heavily incentivizing broke people to become even more broke, more so than credit cards

starkparker 4y ago

Some, not all, BNPL lenders can get predatory with interest and fees if you don't pay the entire balance in 4 payments. For instance, Affirm strikes deals with retail partners that determine the interest rate (if any) on longer payment plans, which can go up to 30% APR vs. a 25% APR mean credit card rate for 650-700 credit scores. That variability also isn't always transparent to the buyer, who might not expect any interest if they used Affirm with another business that didn't require it. Zip, which is compatible with any payment that accepts Visa, charges a flat $1 payment fee per transaction and then a variable late-payment fee that depends on your state. Since more than a third of BNPL users in 2021 missed at least one payment - more than half of those under 40 did, and age demos make up a majority of BNPL users - these fees and rates are lucrative to the lenders.[1] BNPL lenders don't tend to check a buyer's credit, and those that do don't pull a full report, so it's more accessible than a credit card. But successful payments to a BNPL also don't get reported up to credit agencies, and missed payments can be (at least a third and up to three-quarters of those who missed a payment took a subsequent credit score hit), so paying down a BNPL plan exposes the buyer's credit score to risks with no potential benefit. Since the lack of credit check makes BNPLs attractive to demographics with poor credit scores - young, poor, and underbanked - even responsible usage of BNPLs do nothing to improve those scores.[1][2] Like with many low- or no-friction payment tools, BNPLs can facilitate overspending by people who already have poor credit, and the consequences of doing so can be dire to the overspender with few or no consequences to the BNPL lender. Planning a BNPL purchase isn't a problem, but point-of-sale BNPL options and BNPL instruments in debit-card form factors make debt an impulse buy in ways that credit cards can't do in some jurisdictions because they face regulations that BNPL lenders don't (yet[3]). People under the most pressure are buying necessities with BNPL and paying the BNPL debt down with credit card debt, a sort of worst-of-all-worlds scenario.[2] BNPL usage has only increased with inflation and spread to necessities, which in the long run benefits only BNPL lenders. BNPL users are juggling a mean BNPL balance of $665.[2] Another thing that raises hackles about BNPL lenders is how often they promote their services as a social good by pointing out how they avoid the predatory practices of credit cards. As for-profit institutions this can ring as dissonant to people who've experienced stress from debt, because it can suggest that providing low-friction debt to people who can't afford higher-friction debt is a moral imperative. The cringe of it expands when such platitudes are in the company's report to shareholders about its financial successes.[4] And on top of everything, the business model for BNPLs existed only with low/near-zero interest rates. Their value as businesses is evaporating as they face actually having to pay for the money that the lenders themselves are borrowing to fund BNPL transactions.[5] 1: https://www.creditkarma.com/about/commentary/buy-now-pay-later-surges-throughout-pandemic-consumers-credit-takes-a-hit https://www.creditkarma.com/about/commentary/buy-now-pay-lat... 2: https://www.creditkarma.com/about/commentary/consumers-rely-on-buy-now-pay-later-amid-record-inflation-use-credit-to-pay-it-off https://www.creditkarma.com/about/commentary/consumers-rely-... 3: https://www.reuters.com/business/finance/us-consumer-watchdog-plans-regulate-buy-now-pay-later-companies-2022-09-15/ https://www.reuters.com/business/finance/us-consumer-watchdo... 4: https://www.klarna.com/assets/sites/15/2022/02/27195201/Klarna-Full-Year-Results-2021-EN.pdf https://www.klarna.com/assets/sites/15/2022/02/27195201/Klar... 5: https://www.reuters.com/technology/buy-now-pay-later-business-model-faces-test-rates-rise-2022-06-10/ https://www.reuters.com/technology/buy-now-pay-later-busines...