alt Hacker NewsWhat is the benefit for a consumer to use this type of loan and then pay it back on time versus using a credit card and then paying the card back on time?
To me this seems like a new product that would target a different consumer than the one that makes payments on time. But I would like if someone challenges this view. Thanks!
Replies
> What is the benefit for a consumer to use this type of loan and then pay it back on time versus using a credit card and then paying the card back on time?
Slightly longer repayment time frames. (Multiple months instead of just one.)
It’s like layaway. Also you didn’t really need credit before to get them.
A CC gives 1% cash back. Your bank's savings give 4% interest. BNPL doesn't earn the cash back, but over a long term you make more in interest for some purchases.
For small puchases with short repayment periods? Not a clue.
Lower interest because the seller pays the interest
Structuring.
I’ve used them several times, mostly because they are relatively cheap forms of credit for short durations (<12 months). I have plenty of credit available via traditional credit cards, but BNPL —- to this point —- haven’t reported usage rates to the bureaus.
Last summer our A/C went out. It ended up being about $4.5k to replace, and it was a heat emergency at the time. So I put the whole thing on Affirm for three months, at 0% interest. I paid about $50 in fees. That got us through the immediate emergency and gave me time to shop around for a better way to fund it.
I ended up taking out an auto loan with my credit union. The rates were much cheaper than a personal/unsecured loan, and I have three vehicles in the driveway without liens. The loan was for four years, but I’ve already paid it off.
In a tighter situation, BNPL not impacting your credit utilization rates is a big benefit.