This just in: Apple is entering the predatory lending market. Now, I know what some of you are about to say: time value of money, 0% interest, yada yada yada. And sure, for some people, this is...
This just in: Apple is entering the predatory lending market.
Now, I know what some of you are about to say: time value of money, 0% interest, yada yada yada. And sure, for some people, this is fine; they'll shove that money into a HYSA and come out ahead. But most of their customers are in poor financial health and certainly don't have a HYSA, and if they did, the economics just wouldn't make sense.
When I looked into the BNPL scene awhile back, I came away rather disgusted. If you're even a second late, they charge interest rates that are downright predatory (up to 37%), and they're retroactive (e.g. if you're late on month 4, you now owe 4 months of interest). And that is where these companies really make bank: debt-trapping the impoverished and forgetful.
It doesn't even seem to help build credit; I've seen more people say it actually hurts to have consumer finance accounts (which is how these loans get classified on your credit report) than say it helps. In most regards, it's a worse proposition than credit cards with rewards.
Apple signed a deal with the devil for a cut of the ill-gotten gains. Absolutely disgusting.
Would that not be when they launched their own BNPL product? Apple Pay Later. That's then actually issuing the loan. This is just an integration. The companies do not make money from "debt...
This just in: Apple is entering the predatory lending market.
Would that not be when they launched their own BNPL product? Apple Pay Later. That's then actually issuing the loan. This is just an integration.
The companies do not make money from "debt trapping" anyone - they don't even own the loans for very long. If you look at the filings from the public BNPL companies, they basically package up the loans and sell them almost immediately to get them off the books.
They make almost all of their money from merchant fees, which are much higher than on credit cards, which merchants accept because BNPL companies say they have much better conversion rates. This is easily verifiable. Affirm is a public company, you can read their earnings report.
In addition to what stu2b50 said about Apple already being in the lending market, I think it's important to differentiate between individual companies and the industry as a whole. I could not find...
In addition to what stu2b50 said about Apple already being in the lending market, I think it's important to differentiate between individual companies and the industry as a whole. I could not find anything about Affirm practicing the deferred interest you brought up. That is more likely a feature of credit cards' own BNPL programs, according to the Internet.
I once put $800 on my credit card that I didn't have, but was sure I'd have a month from then. It was to pay for classes at a community college so I could get my life back on track. The interest on my credit card was comparable to today's BNPLs, but I saved myself half a year (or more) of my life. I paid off the debt with no interest, yet even if I had paid a month of interest, it would have been worth it.
Sometimes, people need access to credit. A hefty interest rate is probably necessary due to risk of capital. Deferred interest feels scummy. There's an in-between and I haven't yet seen that Affirm isn't walking that tightrope.
Credit is one of the great class divides. If your car breaks down and you have no credit, you're forced to decide what bills not to pay and start a cascade of debt problems. With credit, you get...
Credit is one of the great class divides. If your car breaks down and you have no credit, you're forced to decide what bills not to pay and start a cascade of debt problems. With credit, you get it fixed immediately and can amortize the cost over 2-3 paychecks without even paying interest. Carrying a balance for even a few months doesn't result that much higher cost in the scheme of things. ~24% APR is an annual rate. If you carry a balance for, say, two months, the interest that accumulates is negligible.
Even if you can afford a large purchase, maintaining liquidity is more advantageous and safer than paying it all immediately.
Then you have rewards. Not putting every payment you can on a credit card is leaving money on the table, when you can get 1-5% cash back, credits for services you use, or travel miles.
I don't know if these BNPL services help you build credit and have access to something better in the future, but they at least seem up front about the cost of using them. I've also seen them work well for people in retail setting, with the third party installment plans offered by some stores for appliances.
Being afraid of credit when you have access is like burying cash in your backyard instead of keeping it in a bank or investing it: financial illiteracy that shoots you in the foot and makes you poorer in the long run.
This just in: Apple is entering the predatory lending market.
Now, I know what some of you are about to say: time value of money, 0% interest, yada yada yada. And sure, for some people, this is fine; they'll shove that money into a HYSA and come out ahead. But most of their customers are in poor financial health and certainly don't have a HYSA, and if they did, the economics just wouldn't make sense.
When I looked into the BNPL scene awhile back, I came away rather disgusted. If you're even a second late, they charge interest rates that are downright predatory (up to 37%), and they're retroactive (e.g. if you're late on month 4, you now owe 4 months of interest). And that is where these companies really make bank: debt-trapping the impoverished and forgetful.
It doesn't even seem to help build credit; I've seen more people say it actually hurts to have consumer finance accounts (which is how these loans get classified on your credit report) than say it helps. In most regards, it's a worse proposition than credit cards with rewards.
Apple signed a deal with the devil for a cut of the ill-gotten gains. Absolutely disgusting.
Would that not be when they launched their own BNPL product? Apple Pay Later. That's then actually issuing the loan. This is just an integration.
The companies do not make money from "debt trapping" anyone - they don't even own the loans for very long. If you look at the filings from the public BNPL companies, they basically package up the loans and sell them almost immediately to get them off the books.
They make almost all of their money from merchant fees, which are much higher than on credit cards, which merchants accept because BNPL companies say they have much better conversion rates. This is easily verifiable. Affirm is a public company, you can read their earnings report.
In addition to what stu2b50 said about Apple already being in the lending market, I think it's important to differentiate between individual companies and the industry as a whole. I could not find anything about Affirm practicing the deferred interest you brought up. That is more likely a feature of credit cards' own BNPL programs, according to the Internet.
I once put $800 on my credit card that I didn't have, but was sure I'd have a month from then. It was to pay for classes at a community college so I could get my life back on track. The interest on my credit card was comparable to today's BNPLs, but I saved myself half a year (or more) of my life. I paid off the debt with no interest, yet even if I had paid a month of interest, it would have been worth it.
Sometimes, people need access to credit. A hefty interest rate is probably necessary due to risk of capital. Deferred interest feels scummy. There's an in-between and I haven't yet seen that Affirm isn't walking that tightrope.
Credit is one of the great class divides. If your car breaks down and you have no credit, you're forced to decide what bills not to pay and start a cascade of debt problems. With credit, you get it fixed immediately and can amortize the cost over 2-3 paychecks without even paying interest. Carrying a balance for even a few months doesn't result that much higher cost in the scheme of things. ~24% APR is an annual rate. If you carry a balance for, say, two months, the interest that accumulates is negligible.
Even if you can afford a large purchase, maintaining liquidity is more advantageous and safer than paying it all immediately.
Then you have rewards. Not putting every payment you can on a credit card is leaving money on the table, when you can get 1-5% cash back, credits for services you use, or travel miles.
I don't know if these BNPL services help you build credit and have access to something better in the future, but they at least seem up front about the cost of using them. I've also seen them work well for people in retail setting, with the third party installment plans offered by some stores for appliances.
Being afraid of credit when you have access is like burying cash in your backyard instead of keeping it in a bank or investing it: financial illiteracy that shoots you in the foot and makes you poorer in the long run.
To chime in on what @stu2b50 said, here's a blog post explaining how the businesses make money (most of which is not from debt trapping people).