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This would probably only affect the people with the worst credit scores I imagine. I just don't see a ton of 800+ credit score people deciding to spend 5 paymen

This would probably only affect the people with the worst credit scores I imagine. I just don't see a ton of 800+ credit score people deciding to spend 5 payments of $20 for a pair of $80 shoes.

loeg 1y ago
Plenty of people with good credit use BNPL loans; they are offered on much higher cost items than $80.
- quickthrowman 1y ago
  1.5% back on the purchase via CC rewards beats earning 1% over 3 months (4% yield) in a HYSA every time, anyone using BNPL is using them suboptimally. For a 3 month BNPL loan to be worth it, HYSA rates must be over 6%, and actually a bit more due to the time value of money; you get CC reward cash after the statement period but it takes 90 days (and up to ~120 days) to get three monthly interest payments.
  - loeg 1y ago
    Maybe you replied in the wrong place? This isn't responsive to my comment.
    - quickthrowman 1y ago
      No, I was replying to your comment. Using a BNPL loan is less optimal than paying with a credit card due to the cash back rewards. People with good credit may use them, but it makes zero sense to do so. You always come out ahead by using a credit card and paying it off immediately unless the high yield savings rate is 6% or higher assuming a BNPL loan term of 3 months. Beyond that, it does make sense to use them, like Apple’s 12 month no interest on Apple products with the Apple Card.
      - loeg 1y ago
        I don't think a discussion of optimality is relevant to what I wrote. Lots of people with good credit are not maximizing credit card rewards and sign-up bonuses, either. Humans are not homo economicus. (And just as a factual matter, there are sometimes longer BNPL terms than 3 months, which changes the math on what is "optimal.")
ZYbCRq22HbJ2y7 1y ago
That would depend on the fees and interest, no?
- kurthr 1y ago
  I have so much extra money just laying around that I take unnecessary risks and add complexity to my financial life for kicks and giggles.
sodality2 1y ago
I always thought it was interesting that the BNPL loans’ interest is subsidized by the retailer, which pay the premium in order to improve the chance of a sale (hoping to hone in on those who can’t afford it now and make it back on that extra spend). Which means high credit score, wealthy spenders could put everything they can on BNPL plans and profit the (minuscule) interest over time, but if you can do that on big purchases, maybe it’ll add up. Same way credit cards work, if you have the cash flow and always pay them off in full, you can make a few bucks in a HYSA for the 40 ish days before the statement. I can see a future where a BNPL loan is not offered if the signals the checkout page collects indicates wealth, since they don’t have an issue of cash flow stopping a purchase. Imagine a loan that has a credit score maximum, not a minimum.
- BrawnyBadger53 1y ago
  Discriminating wealthy customers increases the risk profile of the loans which is already questionably high. Retailers are used to paying extra for credit card transactions anyways. BNPL really is just meant to compete with credit cards by splitting the runway across more months for the loan. Equally predatory business model but credit cards are able to offer the same interest amortization that you can do with bnpl through the rewards programs. They're effectively the same.
- benmanns 1y ago
  I’m not sure. I’m sophisticated enough to use BNPL and set aside the funds in a HYSA, but I never have as you miss out on: credit card rewards, credit card purchase protection, credit card extended warranties, credit card chargeback infrastructure. Additionally, I’ve seen BNPL offers where the first payment is in 2 weeks compared to 30-50 days for credit cards depending on when your statement closes and how soon you have to pay, so the extra interest is less than you might think. It could make sense for very large purchases, but then, that’s also where credit card features can really come in handy.
- CPLX 1y ago
  This is a theory, but it flies directly in the face of reality which is that nearly every retailer on the planet would prefer more wealthy customers.
Spivak 1y ago
Except it's 4 payments of $20. The whole selling point is that they're zero interest. It's CC float without the CC.
etchalon 1y ago
A lot of BNPL loans are offered at 0% for X payments. Usually 6 months, sometimes 12 months on larger purchases. Given current interest rates, I take that deal WHENEVER it's offered.
p1necone 1y ago
Shifting a cost forward a couple months interest free is a great deal for people who are financially responsible, especially if you have some other loan (like a mortgage) that you could be paying off more of instead. It's no different to the practice of using a credit card for everything and then paying off in full a month later because the credit card interest is lower (often zero if you pay off within a month) than the mortgage interest.
- mNovak 1y ago
  In the case of a 0% grace period sure I agree, but otherwise in no world is credit card interest cheaper than a mortgage over the same time period.
  - p1necone 1y ago
    You're right, I was misremembering - it's just the 0% interest when you pay off the full balance every month that makes this worth doing.
- dehrmann 1y ago
  I briefly looked into this, but I wasn't convinced the juice was worth the squeeze. My cash is automatically getting ~4%, but there's too much fine print to make sure the BNPL rate really is 0%, I'm sacrificing 2% cash back, and missing one payment makes the whole endeavor negative ROI.
  - kjellsbells 1y ago
    > fine print I suspect this is where some buyers will get into trouble. Theyll think they made a payment, or they miss a notification that tells them to send this month's payment to servicer X not Y, and before they realize, boom they are in default and owe all the interest.
firesteelrain 1y ago
A lot of young people where Affirm-ing their DoorDash etc. even though they had the money

This would probably only affect the people with the worst credit scores I imagine. I just don't see a ton of 800+ credit score people deciding to spend 5 payments of $20 for a pair of $80 shoes.

loeg 1y ago

Plenty of people with good credit use BNPL loans; they are offered on much higher cost items than $80.

quickthrowman 1y ago
1.5% back on the purchase via CC rewards beats earning 1% over 3 months (4% yield) in a HYSA every time, anyone using BNPL is using them suboptimally. For a 3 month BNPL loan to be worth it, HYSA rates must be over 6%, and actually a bit more due to the time value of money; you get CC reward cash after the statement period but it takes 90 days (and up to ~120 days) to get three monthly interest payments.
- loeg 1y ago
  Maybe you replied in the wrong place? This isn't responsive to my comment.
  - quickthrowman 1y ago
    No, I was replying to your comment. Using a BNPL loan is less optimal than paying with a credit card due to the cash back rewards. People with good credit may use them, but it makes zero sense to do so. You always come out ahead by using a credit card and paying it off immediately unless the high yield savings rate is 6% or higher assuming a BNPL loan term of 3 months. Beyond that, it does make sense to use them, like Apple’s 12 month no interest on Apple products with the Apple Card.
    - loeg 1y ago
      I don't think a discussion of optimality is relevant to what I wrote. Lots of people with good credit are not maximizing credit card rewards and sign-up bonuses, either. Humans are not homo economicus. (And just as a factual matter, there are sometimes longer BNPL terms than 3 months, which changes the math on what is "optimal.")

ZYbCRq22HbJ2y7 1y ago

That would depend on the fees and interest, no?

kurthr 1y ago
I have so much extra money just laying around that I take unnecessary risks and add complexity to my financial life for kicks and giggles.

sodality2 1y ago

I always thought it was interesting that the BNPL loans’ interest is subsidized by the retailer, which pay the premium in order to improve the chance of a sale (hoping to hone in on those who can’t afford it now and make it back on that extra spend). Which means high credit score, wealthy spenders could put everything they can on BNPL plans and profit the (minuscule) interest over time, but if you can do that on big purchases, maybe it’ll add up. Same way credit cards work, if you have the cash flow and always pay them off in full, you can make a few bucks in a HYSA for the 40 ish days before the statement. I can see a future where a BNPL loan is not offered if the signals the checkout page collects indicates wealth, since they don’t have an issue of cash flow stopping a purchase. Imagine a loan that has a credit score maximum, not a minimum.

BrawnyBadger53 1y ago
Discriminating wealthy customers increases the risk profile of the loans which is already questionably high. Retailers are used to paying extra for credit card transactions anyways. BNPL really is just meant to compete with credit cards by splitting the runway across more months for the loan. Equally predatory business model but credit cards are able to offer the same interest amortization that you can do with bnpl through the rewards programs. They're effectively the same.
benmanns 1y ago
I’m not sure. I’m sophisticated enough to use BNPL and set aside the funds in a HYSA, but I never have as you miss out on: credit card rewards, credit card purchase protection, credit card extended warranties, credit card chargeback infrastructure. Additionally, I’ve seen BNPL offers where the first payment is in 2 weeks compared to 30-50 days for credit cards depending on when your statement closes and how soon you have to pay, so the extra interest is less than you might think. It could make sense for very large purchases, but then, that’s also where credit card features can really come in handy.
CPLX 1y ago
This is a theory, but it flies directly in the face of reality which is that nearly every retailer on the planet would prefer more wealthy customers.

Spivak 1y ago

Except it's 4 payments of $20. The whole selling point is that they're zero interest. It's CC float without the CC.

etchalon 1y ago

A lot of BNPL loans are offered at 0% for X payments. Usually 6 months, sometimes 12 months on larger purchases. Given current interest rates, I take that deal WHENEVER it's offered.

p1necone 1y ago

Shifting a cost forward a couple months interest free is a great deal for people who are financially responsible, especially if you have some other loan (like a mortgage) that you could be paying off more of instead. It's no different to the practice of using a credit card for everything and then paying off in full a month later because the credit card interest is lower (often zero if you pay off within a month) than the mortgage interest.

mNovak 1y ago
In the case of a 0% grace period sure I agree, but otherwise in no world is credit card interest cheaper than a mortgage over the same time period.
- p1necone 1y ago
  You're right, I was misremembering - it's just the 0% interest when you pay off the full balance every month that makes this worth doing.
dehrmann 1y ago
I briefly looked into this, but I wasn't convinced the juice was worth the squeeze. My cash is automatically getting ~4%, but there's too much fine print to make sure the BNPL rate really is 0%, I'm sacrificing 2% cash back, and missing one payment makes the whole endeavor negative ROI.
- kjellsbells 1y ago
  > fine print I suspect this is where some buyers will get into trouble. Theyll think they made a payment, or they miss a notification that tells them to send this month's payment to servicer X not Y, and before they realize, boom they are in default and owe all the interest.

firesteelrain 1y ago

A lot of young people where Affirm-ing their DoorDash etc. even though they had the money