I don’t grasp the allure of Buy Now Pay Later. Isn’t that precisely what credit cards provide? Are they pushing more charges to the retailer and less interest charges to the consumer?
It’s popular with young people who can’t get or don’t want credit cards (just look at the marketing for Klarna to see the target market). Customers and merchants like it for the same reason - it allows a transaction to happen that otherwise wouldn’t. Merchant gets their money, customer gets their product and pays no fees if they repay on schedule.
Obviously if you can’t afford an item without this type of system then the probability that you miss a payment is high, and then these companies make their profit.
Every single instance of this type of thing that I’ve looked at has had a fee for using their services, either a flat amount or a percentage of the transaction cost, so that even if they’re interest-free (and don’t they announce that loudly!) they’re not cost-free.
> Are they pushing more charges to the retailer and less interest charges to the consumer?
This is my understanding of how the “no-interest” BNPL offers work. You can buy a Peloton bike and finance it through Affirm for 0% interest. The only way that scheme works for Affirm is if Peloton pays a kickback to Affirm for handling the financing.
I just read through their latest 10Q and it confirmed what I assumed:
“From merchants, we earn a fee when we help them convert a sale and facilitate a transaction. While merchant fees depend on the individual arrangement between us and each merchant and vary based on the terms of the product offering, we generally earn larger merchant fees on 0% APR financing products. For the three months ended September 30, 2021 and 2020, 0% APR financing represented 43% and 46%, respectively, of total GMV facilitated through our platform.”
They also buy and service some of the loans they make.
Ideally you could just wait until you saved money to buy your smart bike.
The issue here is at least with a credit card I'm motivated to pay off the debt ASAP, and shop on total price vs what the payments are.
Super smart bike for 99$ a month sounds better than Smart bike for 2500$.
I recall as a teenager I went to a Rent a Center and they pitched a 50$ a week laptop. For like 24 weeks. Absolutely idiotic, I saved 400$ and brought one cash.
This type of thing preys upon the fiscally illiterate. You should NEVER use this junk. Keep one or two credit cards and pay them off ASAP.
Presumably, people who use Buy Now Pay Later do not qualify for credit cards. Hence the extremely high effective interest rates (referred to as some type of “fee” instead of interest).
