![]() It means it's easier to get these buy now, pay later loans in the beginning. The problem with these is kind of the flip side of being outside of the normal credit-reporting system. So, you know, it is - these payments are interest free, which means it can be pretty cheap money, you know, if you live up to all the terms and conditions of the loans. Where can this go wrong for the consumer? THOMPSON: So you know the old adage - right? - that if it sounds too good to be true, it probably is. So they're bringing in new people, and then also, there's something about the psychology of kind of breaking down the total price into these installment - into these smaller installment prices that make people a little less hesitant to complete their order - you know, to click buy when they're at the end of their purchase, when they're in the checkout. So they're bringing in a bunch of new customers, people who might not have used credit cards or who might be kind of allergic to the idea of using credit at all - so like, a lot of Zoomers and millennials who grew up in the wake of the financial crisis and just don't want to use credit cards - and people who, you know, might have thin credit histories or bad credit and might not otherwise get access to things like credit cards and other forms of loans. And for the most part, it seems like the model actually works for everybody involved because what the buy now, pay later companies are offering these merchants is the promise of a lot more sales. HOROWITZ-GHAZI: Presumably, that is happening to some degree, but it's still kind of early days for this model. THOMPSON: If the merchant has to pay these fees, are the merchants then passing those fees along to the consumer through higher prices? And they're charging somewhere between 4 and 9.5%, which can be a lot higher than what credit cards usually charge, which is between 2 and 4%. The way these companies are making their money is they're actually taking fees from the merchants - so the companies that are selling you the goods you're buying online or in person. And that isn't kind of the center of the business model. And the fees, while there are late fees and there are kind of forms of interest that kick in if you repeatedly don't pay, the fees really aren't that high. And there isn't any interest, as you mentioned. They're not going to, like, repossess your Nike sneakers and try to resell them to recoup, you know, your missed payments or anything. There isn't collateral with these things. So usually, lending money is profitable because of some combination of interest and fees or maybe collateral. THOMPSON: So how are the companies making money on this if there's no interest? Somebody's getting paid. ![]() It works kind of like old-fashioned layaway, except with buy now, pay later, you get whatever it is you're buying immediately. They'll take that initial payment, and then you'll pay them back in regular installments. You'll pay the first installment immediately using, you know, whatever bank account or credit or debit card you wish. Usually it's this pay-in-four model, which means they'll ask for installment payments. So the way this works is you'll be shopping online or, increasingly, in more and more stores IRL, and instead of paying the total price with a credit card or a debit card or something, you'll be offered a buy now, pay later option. So buy now, pay later is a form of consumer credit - like credit cards or payday loans or other things we've seen - but it's in kind of a new form. THOMPSON: So buy now, pay later sounds simple, but is it? Can you walk us through how these services work? ![]() Alexi, welcome.ĪLEXI HOROWITZ-GHAZI, BYLINE: Thank you for having me. He looked into buy now, pay later services in a recent Planet Money episode. So what's behind this trend, how does it work and who's actually paying? For that, we've called Planet Money's Alexi Horowitz-Ghazi. Now Apple is getting into the game with Pay Later. Klarna, Afterpay and Affirm are just a few of them. Buy now, pay later companies have exploded in popularity during the pandemic. If you've done any online shopping recently, you may have seen an option that would allow you to pay a little bit now and the rest later, interest free. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |