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My impression is that By Now Pay later schemes target people who by circumstance can't afford to "pay now"; resulting in overwhelmingly exploitative practices,
by have_faith 3y ago
My impression is that By Now Pay later schemes target people who by circumstance can't afford to "pay now"; resulting in overwhelmingly exploitative practices, constantly trying to nudge people towards BNPL who might struggle with the debt. Can someone elucidate for me the supposed benefit of the system?
- zer8k 3y agoFor people who are half decent with money the companies that offer "12 months no interest" type plans are the best. In theory, it allows you to invest the capital up front for the 12 months and then pay it off. You essentially can reduce the cost by whatever the prevailing interest rate on a 12 month CD is. But yes, these plans (usually deferred interest) are designed to exploit people who are bad with money. They also usually go out of the way to hide how much you're racking up in order to maximize gain. This kind of person thinks "What's another $1000" when their bill is already at $4000. Furniture stores are infamous for this.
- restes 3y ago> You essentially can make money buying something. Well, only if you can earn more over 12 months than the asset you bought depreciated. I think a better way to look at it is that you can earn a small discount.
- borski 3y agoWith the 0% interest rate in Apple’s Pay Later, if you can’t earn more than that you have a gambling problem.
- hiatus 3y agoThe parent specifically mentions depreciation which you don't seem to be accounting for by only considering the interest rate of the loan.
- borski 3y agoFine, but the depreciation is not all that significant. Hypothetically, there is absolutely nothing stopping you from buying the device with Apple Pay Later for 0% interest, selling it unopened for full (or close to full) value, and making money from arbitrage that way. As a result, depreciation can be written off, I think, since I would argue if you do buy it and keep it you’ve gotten value from it even if it isn’t cash.
- acka 3y agoI'm not sure this will fly, or at least I think it depends on the issuer and the law in the particular jurisdiction of the buyer. I remember reading in the fine print of one issuer of BNPL in my country a statement that the buyer does not have full ownership of the product until after payment of the final installment of the loan has been received and confirmed by the issuer, implying that the product cannot be sold to a third party until the loan has been repaid in full. I am unsure if such a statement has any legal force but buyer beware.
- ta1243 3y agoAnd completely ignores the utilisation of the product being bought.
- randomdata 3y agoDepreciation costs should already be factored into the capital investment. You should not be accounting for it twice.
- furyofantares 3y agoY'all, the original post was edited, but the quoted bit about being able to make money by buying things was indeed wrong, you don't end up with more money by buying stuff this way. GP seems to have edited their post to talk about buying at a discount instead, as was suggested by this post you're all now bagging on.
- jayd16 3y agoThis assumes you can't get a lower rate that starts immediately, no?
- ta1243 3y agoI just this morning bought a new iphone. Choice was something like £500 up front or £20.88 a month for 24 months. No brainer.
- Gunnerhead 3y agoI’m assuming the latter if zero percent interest rate?
- aaomidi 3y ago20.88*24=501.12
- toomuchtodo 3y agoThis is not what most buy now pay later volume is though. It is marketing to originate what is essentially a credit card to a consumer cohort that is rightfully risk adverse to credit cards. https://scholarship.law.unc.edu/cgi/viewcontent.cgi?article=1574&context=ncbi https://scholarship.law.unc.edu/cgi/viewcontent.cgi?article=... https://www.consumerfinance.gov/about-us/newsroom/cfpb-study-details-the-rapid-growth-of-buy-now-pay-later-lending/ https://www.consumerfinance.gov/about-us/newsroom/cfpb-study... https://files.consumerfinance.gov/f/documents/cfpb_buy-now-pay-later-market-trends-consumer-impacts_report_2022-09.pdf https://files.consumerfinance.gov/f/documents/cfpb_buy-now-p... https://www.sfgate.com/news/article/influencers-lead-Gen-Z-into-debt-17142294.php https://www.sfgate.com/news/article/influencers-lead-Gen-Z-i... https://www.cnn.com/2022/07/06/economy/buy-now-pay-later-bnpl-inflation-data/index.html https://www.cnn.com/2022/07/06/economy/buy-now-pay-later-bnp... https://www.cbinsights.com/research/report/buy-now-pay-later-outlook/ https://www.cbinsights.com/research/report/buy-now-pay-later... (disclosure: I have submitted public comments to various regulators on the topic)
- saberience 3y agoIf you have to pay for a phone over 24 months then you can't really afford it.
- csmiller 3y ago
- post-it 3y ago> You essentially can make money buying something. You can save money buying something, which in a spreadsheet may look the same but is very different.
- jameshart 3y agoDepends on the something. Inflation as it is today, the price of a new something in 12 months might be up 6% or more over those 12 months, but you're locking in the price today.
- post-it 3y agoLocking the price in is only a guaranteed benefit if you 100% will end up buying it and the price does go up.
- ricardobeat 3y agoWhat kind of investment options exist for that? The amounts involved are usually very small and in 12 months the return will be insignificant. I bet you can count on your fingers the amount of people doing that worldwide, it's not really relevant for the conversation.
- SOLAR_FIELDS 3y agoYeah that kind of conversation makes sense on amortization of large amounts over long periods. If I buy something that costs $100 with a 0% interest rate on a BNPL scheme over 12 months, how much did I earn by investing that $100 elsewhere? Is there even a place that offers returns on that small amount of money? Even so, would it be anything more than a few cents? I guess you could buy half a stock of AAPL with it or something
- chiph 3y agoI've done that a couple of times buying televisions from Best Buy. Take the 12 month no-interest offer, then pay it off in 11 months - it's free money. However, they have changed the details in recent years. Prior to this it was an ordinary financing account. But now it is a Best Buy credit card account with a limit equal to the purchase price. This means that in the 1st month of the offer, you're at 100% utilization on that card. And this hurts your credit score. Not to mention it now has an annual fee with an interest rate potentially as high as 31.49%. And this is just too risky. Save your money, then buy what you want.
- borski 3y agoWell, given that there is no interest, it doesn’t seem to me that it’s particularly exploitative. It is, effectively, allowing you to buy someone you can’t yet afford, but without exploiting you. If anything, it’s a significant help. As another example, it allows you to purchase a new laptop while selling your old one, such that you don’t hVe time without one at all.
- paxys 3y agoThere is absolutely interest if you can't keep up with the payment schedule, which is what every BNPL provider counts on. That is exactly why they push products that they know people can't afford and which have no resale value.
- borski 3y agoWhat? iPads have tons of resale value. Apple’s Pay Later has zero interest and a cap of $1000 of credit. People are going to buy a new iPad whether Apple gives them an easier way to do it or not; the difference is with Apple’s Pay Later they’re only on the hook for the cost of the device, and not additional interest monthly on top of that. And iPads are very resellable. What are you talking about?
- paxys 3y agoThey take a 30% or greater hit the second you take them out of the packaging, and even more after a newer version is released. Consumer electronics are not an appreciating asset. You will never be able to pay off the original debt by selling it.
- borski 3y agoSure, and you’re not intended to. You’re buying a product that presumably, to you, has value. Apple is offering to let you have their valuable product by paying it off over time with zero interest. That’s it. The point is that instead of laying the cash out upfront you can use that cash to generate income while you also have your valuable product you wanted to buy. Not sure why that’s hard to parse.
- wincy 3y agoI had bad credit (grew up poor, learned terrible habits, getting better) for a long time and Affirm has been great. I do the every 2 weeks no interest loans and I love it compared to credit cards where I’d just irresponsibly carry a balance. The default “financial hygiene” of the loan and the fact that I’m paying for a product I remember makes it great for me. There was a heat wave and I bought an air conditioner yesterday using Affirm to smooth out the payments. In fact I cut up all my credit cards about a week ago and plan to only use BNPL vs credit cards going forward if I’m in need of a loan.
- lukev 3y agoThe irony here is that you'll need to use (and regularly pay off) credit cards if you want to improve your credit.
- sokoloff 3y agoYou don’t need to regularly pay off your credit cards to improve your score; you merely need to make the payments on time and not have too high a utilization ratio.
- Guvante 3y agoAnything that reports to credit bureaus counts. Also I am always surprised when people don't treat CC expenses as they would cash... CC interest has always been intolerably high to me. I totally get emergencies and now I am out money. I don't get rolling balances when that costs you like 2% per month.
- wincy 3y agoI know, I know, I can talk all day about being rational but then I REALLY want an RTX 4090 (to learn machine learning of course! Trust me bro! Then I just play video games on it and oh why not upgrade the rest of the computer, as an aside proud of myself I got an NVIDIA RTX3080 used for $400 instead) and there’s no way my wife would be okay with an $1800 expense on the debit card but she might not notice 6 months of $300 payments. It’s easier to fight back when the loan terms are explicitly laid out, “okay you’re getting a one year loan and it’ll be $1000 loan and $300 you’re going to pay in interest”. And I’m like “okay I’ll wait and just save up”. The lesson I learned growing up with a single mom was “spend the money immediately or else stepdad will spend it on drugs, money is a liability, you’re better off having things, harder to pawn vs cash”. And credit cards just makes that highly dysfunctional mindset that’s burned into my brain even worse.
- frereubu 3y agoIt would be fascinating to have a look at the finances of these schemes to see what the proportions are of people who use it to responsibly smooth out payments vs those who use irresponsibly and end up just getting deeper in debt (and all the variations between those two extremes). My hunch is the same as yours, but real-world data would be very interesting.
- lxgr 3y agoNobody rational and responsible (with at least acceptable credit) uses BNPLs to "smooth out payments". The payment terms (100% after 3 weeks on average, vs. >98% after 4.5 weeks on average for credit cards) are strictly worse than those of credit cards.
- frereubu 3y agoAs I said, this is my hunch too. But there is at least one sibling comment which says they do use it responsibly. Public, hard data would give a clear outline of the reality rather than supposition and insinuation, and it would then be much easier to challenge that practice as predatory (presuming that’s what the data did say).
- maerF0x0 3y agoI personally use buy now pay later whenever I can get 0% financing for a time. I get the item now, interest on my own money/investments, and they can eat the inflation. The main risk being if I get ahead of myself buying things I should just not buy. Even if I lose my income in the future my plan is simply to sell the items used, and to sell off the assets I gained in the process. a CPI calculator says we've had about 25% inflation in the past 4 years, and my own basket of goods suggests it's closer to 50%. (For example gas in Texas has trough to peaked 300%, more like 200% on average). So I think the strategy might be a good one, albeit hard to get a ton of money behind (ie, I have yet to find a way to play it with $25k)
- wkat4242 3y agoYeah I worked in various computer shops in the mid 90s. And one of my bosses was a genuinely good guy (the others were sleazy sales guys who'd even screw me over on my hours) One day I saw him sighing over the credit line forms for some of the customers of that day and he explained that these things are almost always used by people who can't afford it. He'd had some people in trouble trying to bring the stuff back which of course he couldn't do. And the head office didn't care. Better to stay away from this crap. I guess it makes some sense because today's 1 buck is only worth 90 cents next year but nope I just buy my stuff outright, even cars. The only thing I'd get a loan for is a house. I don't even have a credit card, the only reason I ever had one was that debit cards weren't accepted everywhere but that's long fixed.