The Buy Now, Pay Later Bubble Is About to Burst

crwth

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Wouldn't it be weird not to be indexed toward consumers' debt? Because it will just be "delayed" and will still be billed, the problem is that the thinking of people trying it out makes it seem that they still have the money and would probably spend more than will rack up more debt.

The logical way of approaching these people interested in BNPL is the following.

Make sure that you have the budget
Check the Terms and Conditions of the issuer.
Track your spending

There might be unexpected problems that can be encountered with this. I think some of these financial aspect should be studied by people in order not to have problems with the financial system.

DrBeer

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Quote from: jrrsparkles on January 17, 2023, 01:20:12 PM

Quote from: DrBeer on January 16, 2023, 05:36:19 PM

Let me disagree with the assessment.

so that the system is quite beneficial to everyone - the consumer, the financial sector, manufacturers, sellers. Without the movement of money - the economy begins to die ....

But we don't know how many of the people used the feature wisely to tackle their temporary financial hardship by splitting the bills and paying in multiple installments but my assumption is mostly people used it to buy luxury items which are not really needed for them but for the sake of pride statement and buy now pay later is same as credit card trap but covers almost everyone even who doesn't have credit line to have one so they opt for these kind of small installment plans and trapped them.

I agree with this completely. There are people who manage their finances logically and buy really necessary things using preferential mechanisms with convenient payment schemes (such as installments with 0.1% per annum). And there are people who buy on CREDIT, expensive "trinkets", to give themselves a higher status, as a result, they have neither status, nor money, nor a chance to break out of this vicious circle

mvdheuvel1983

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Budgeting is the answer to everything. It shouldn't matter when you pay for something if you have already set aside the money to do so. Just exercise financial restraint—something that many people struggle with.
Interest under the Buy Now, Pay Later policy begins the day you make the purchase. Interest increases.

nara1892

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Quote from: Hispo on January 18, 2023, 07:58:27 AM

Quote from: nara1892 on January 18, 2023, 07:49:01 AM

Quote from: Hispo on January 17, 2023, 01:12:32 PM

-snip-

I think you are lucky because there is not so much "Buy Now Pay Later" there. What I know now is that many people around me are using this, yes it looks helpful if we use it very wisely. But this will be disastrous for us if we only use it for things that are not considered important.
My neighbor uses Buy Now Pay Later, but he uses it for business. Yes, he opened installments for other people, but he used the BNPL, things like this are profitable because he can see business opportunities without spending capital. But what is a pity is the person who credits it, because the costs incurred will be greater than the price of the goods.

Well, there is a good reason some people think credit is a trap and living on it is a new form of slavery.
Unfortunately, there are folks who do not have much option and end up acquiring debt beyond their capacities, also I believe the fact BNPL purchases do not affect the credit score of the clients only helps for people not to meditate on the consequences of its abuse and facilitate recklessness.

There are some consequences indeed and of course there are positive and negative sides.
On the positive side, this can still help if it's only done once or twice, but with conditions like this it actually makes people forget that they have to pay in installments and prefer shopping using that.
In my country now there are many conditions like this which actually cause a sizable debt in the end because they are not aware of using a method like this, especially when past the specified time limit there is usually more interest to be paid which makes this a little difficult.

Davidvictorson

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Quote from: Hispo on January 18, 2023, 07:58:27 AM

Well, there is a good reason some people think credit is a trap and living on it is a new form of slavery.
Unfortunately, there are folks who do not have much option and end up acquiring debt beyond their capacities,

I doubt it is a model which will "burst" any time soon, not yet.

If someone used this carelessly, they may soon go over their spending limit. These services, in my opinion, provide people a false sense of financial stability. Simply put, you're more likely to overspend despite maintaining your budget. I've used one of those companies in the past and have previously tried the six-month plan. Never once more Because I was unaware that the expense would be reported to credit bureaus, my credit score was negatively impacted. I paid it off right away and haven't looked back since.

Mr.right85

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Quote from: Hispo on January 18, 2023, 07:58:27 AM

Well, there is a good reason some people think credit is a trap and living on it is a new form of slavery.
Unfortunately, there are folks who do not have much option and end up acquiring debt beyond their capacities,

I doubt it is a model which will "burst" any time soon, not yet.

It always feels so bad to be in such position but, its hard to sat there isn't of an option. Choosing to buy stuff on credit is very much an option and th other options are:
Seeking alternatives with lower price or
Having to wait a while to save up so you can afford just what you want.

It's not so obvious how buying of credit or getting getting to take loans to satisfy wants always seems like the easiest option. At least, you get to extend your payment through time but, its actually keeping keeping up with the payment that is always the issue and even in the given time, your likely to accumulate even more debts.

A typical spending g more than you can afford and that's a trend that builds up for sure.
Some business model it is and I don't think it's it's any time soon as well. It only gets better and better with easier ways to access them.

Hispo

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Quote from: nara1892 on January 18, 2023, 07:49:01 AM

Quote from: Hispo on January 17, 2023, 01:12:32 PM

-snip-

I think you are lucky because there is not so much "Buy Now Pay Later" there. What I know now is that many people around me are using this, yes it looks helpful if we use it very wisely. But this will be disastrous for us if we only use it for things that are not considered important.
My neighbor uses Buy Now Pay Later, but he uses it for business. Yes, he opened installments for other people, but he used the BNPL, things like this are profitable because he can see business opportunities without spending capital. But what is a pity is the person who credits it, because the costs incurred will be greater than the price of the goods.

Well, there is a good reason some people think credit is a trap and living on it is a new form of slavery.
Unfortunately, there are folks who do not have much option and end up acquiring debt beyond their capacities, also I believe the fact BNPL purchases do not affect the credit score of the clients only helps for people not to meditate on the consequences of its abuse and facilitate recklessness.

I doubt it is a model which will "burst" any time soon, not yet.

nara1892

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Quote from: Hispo on January 17, 2023, 01:12:32 PM

Sometimes all these concepts of Buy Now, Pay Later and similar plans sound pretty much alien to me.
Here in my country, because inflation, banks do not offer credit; here cash is king.

Banks used to offer credits but eventually the inflation started to go much faster than the interest and banks started to lose money with loans.
Here it is rare for someone to even have debt, and listening about people in USA living on credit sounds kind of crazy to me. Sad

I think you are lucky because there is not so much "Buy Now Pay Later" there. What I know now is that many people around me are using this, yes it looks helpful if we use it very wisely. But this will be disastrous for us if we only use it for things that are not considered important.
My neighbor uses Buy Now Pay Later, but he uses it for business. Yes, he opened installments for other people, but he used the BNPL, things like this are profitable because he can see business opportunities without spending capital. But what is a pity is the person who credits it, because the costs incurred will be greater than the price of the goods.

Beparanf

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I'm surprised how BNPL works in your country. Here some major banks offer this credit option with zero percent interest for up to 12 months of installation. I'm always availing this option when purchasing expensive appliances. They just charged me of annual card fee worth 20$ but that's all. The only downside is when I missed my monthly dues because they charge me 5% of the total value. But in general BNPL in my credit card works perfectly without painful fees. Probably banks partnered with the merchant to get fees for my purchases.

The Sceptical Chymist

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Quote

People are buying cardigans with this kind of financing. They’re buying groceries and OLED TVs. During the summer of 2020, at the height of the coronavirus pandemic, they bought enough Peloton products to account for 30 percent of Affirm’s revenue.

So the gist of this is that poor people are living beyond their means, maybe even at record levels....and I just have to shrug my shoulders at this piece of non-news. Buying on credit, layaway, and every permutation of that concept has been going on probably since the beginning of commerce.

Anyone see John Travolta in Saturday Night Fever from 1977? I think the first line of dialog is him putting a disco shirt on layaway--in New York City, no less, which had to have been expensive (if it were real). **Edit: Ah fuck it, that's what Youtube is for: it's at 3:50 in this clip**

So whaddya expect these days? The Fed has pumped so much money into the system, and interest rates have been so low for so long that this outcome was inevitable. The only thing that's going to prevent people from using their money responsibly is a major crisis like 2006 to whenever it ended, or worse. I'm not hoping for that, but that's the reality I see.

franky1

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most BNPL are not people that cant afford things. BNPL is not really used much on items over $1k

BNPL is used mainly for those the 'could' afford it, but simply dont want to see £$20-£$100 just go from their bank in one shot

their thinking is 'rather then see $100 go now i can see $10 go per month for 10 months of the 12 month 'interest free' period
their problem is doing this YY times a year ends up they then see YY x $10 go from their bank=$YY0 again.. but locked into paying $YY0 a month for multiple months.

EG
where buying $100 in groceries per week, via BNPL feels like "oh its only only $10 a month for 10 months, i can afford that". but doing it each week means they are ending up with $440 a month payments by the 10th month, and continuing that cycle because they are now obligated to pay that.

Jody.Drummer

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Quote from: jrrsparkles on January 17, 2023, 01:20:12 PM

Quote from: DrBeer on January 16, 2023, 05:36:19 PM

Let me disagree with the assessment.

so that the system is quite beneficial to everyone - the consumer, the financial sector, manufacturers, sellers. Without the movement of money - the economy begins to die ....

But we don't know how many of the people used the feature wisely to tackle their temporary financial hardship by splitting the bills and paying in multiple installments but my assumption is mostly people used it to buy luxury items which are not really needed for them but for the sake of pride statement and buy now pay later is same as credit card trap but covers almost everyone even who doesn't have credit line to have one so they opt for these kind of small installment plans and trapped them.

The convenience of things like this makes most people unable to manage their expenses. Yes, we are starting to feel it now where users find it easiest with the Buy Now Pay Later service, so they don't think about what happened at the end of their month. Swelling spending will be felt and it will be more pronounced when the economy starts to deteriorate. Maybe it doesn't really matter when they still have a steady income, but there is a risk at stake, I mean do they know what will happen to their finances in the future? The answer is no. It is possible that bad things will happen to their financial condition so that it will be difficult for them to pay their installments every month.
I agree that the ease of this feature is a kind of trap that ensnares its users, maybe now they feel it's easier, but you have to think about the long term use of this feature.

franky1

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Quote from: jrrsparkles on January 17, 2023, 01:20:12 PM

Quote from: DrBeer on January 16, 2023, 05:36:19 PM

Let me disagree with the assessment.

so that the system is quite beneficial to everyone - the consumer, the financial sector, manufacturers, sellers. Without the movement of money - the economy begins to die ....

But we don't know how many of the people used the feature wisely to tackle their temporary financial hardship by splitting the bills and paying in multiple installments but my assumption is mostly people used it to buy luxury items which are not really needed for them but for the sake of pride statement and buy now pay later is same as credit card trap but covers almost everyone even who doesn't have credit line to have one so they opt for these kind of small installment plans and trapped them.

https://www.citizensadvice.org.uk/about-us/about-us1/media/press-releases/two-fifths-borrowed-to-pay-off-buy-now-pay-later/
2 in 5 people used further loans to make repayments of initial BNPL

https://www.finder.com/uk/buy-now-pay-later-statistics
Money from their:
current account 52%
Credit card 26%
Savings 23%
Bank overdraft 9%
Borrowed from friends/family 7%
Personal loan 6% Payday loan 5%
Guarantor loan 3%
Other 8%
1 in 4 people used further loans to make repayments of initial BNPL

as for what they buy..
https://www.finder.com/uk/buy-now-pay-later-statistics

Quote

One-third (33%) of BNPL customers have used the service to purchase casual wear clothing. With many online fashion brands such as ASOS, boohoo and SHEIN accepting BNPL services, this is a popular way to afford clothing, especially for the younger generations. After casual wear, eating out is not far behind with 31% of consumers using BNPL to pay for trips to restaurants. These are followed by beauty products, with one-quarter (26%) of consumers paying for these using BNPL services.

Technology purchases (22%), travel (19%) and home improvements (19%) follow. Perhaps worryingly, 14% of consumers use BNPL to pay for their rent.

mostly paying for clothes, fastfood and beauty products (small purchases under $£50)
so in both separate statistics ATLEAST 40% are unwisely using BNPL
so in both separate statistics ATLEAST 25% are unwisely managing BNPL repayments

Fortify

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Quote from: Hydrogen on January 16, 2023, 05:10:20 PM

The phrase "record levels of credit card debt" has made headlines in US media for the past 20 years. It had become so integrated and normalized, I hadn't realized generation Z and youth demographics may have formed negative opinions around credit cards. Causing them to avoid use of cc.

According to this, BNPL (buy now pay later) debt is often not included in credit scores or personal debt statistics. Which could lead to average debt per consumer/household statistics resembling the portion of an iceberg which remains above water. There have been rumors for months now that a high percentage of US consumers were charging necessities to BNPL or credit cards. A bill which they may not be able to afford. The headline appears to indicate it could be an affirmative claim.

There could be a crisis in the near future. As americans search for alternative methods to cover their monthly expenses once their credit cards and BNPL plans are tapped out. However, considering BNPL doesn't appear to track consumer debt. It is possible american consumers could rack up an unlimited number of BNPL plans without the additional debt appearing on credit check radar. Perhaps that is the way?

It seems like every generation has it's financial crisis where companies figure out a new way to abuse people, but they also tend to loop through the same old schemes with a slight twist - pay day loans, buy now pay later, credit cards. The problem is they can all be used sensibly and benefit a consumer who is aware of the traps, however they really make the huge money from people who don't understand all the catches that come with them. Whether that is the "honeymoon" period for credit cards at a certain APR, zero percent interest on loans for the first year or two or the extortionate rate that payday borrowing can have. No doubt the finance people are already angling the next scheme that will fly under the radar of regulators for a few years to come. Financial education is one tool, but they can also target desperate borrowers who might know better anyway.

jrrsparkles

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Quote from: DrBeer on January 16, 2023, 05:36:19 PM

Let me disagree with the assessment.

so that the system is quite beneficial to everyone - the consumer, the financial sector, manufacturers, sellers. Without the movement of money - the economy begins to die ....

But we don't know how many of the people used the feature wisely to tackle their temporary financial hardship by splitting the bills and paying in multiple installments but my assumption is mostly people used it to buy luxury items which are not really needed for them but for the sake of pride statement and buy now pay later is same as credit card trap but covers almost everyone even who doesn't have credit line to have one so they opt for these kind of small installment plans and trapped them.

Hispo

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Sometimes all these concepts of Buy Now, Pay Later and similar plans sound pretty much alien to me.
Here in my country, because inflation, banks do not offer credit; here cash is king.

Banks used to offer credits but eventually the inflation started to go much faster than the interest and banks started to lose money with loans.
Here it is rare for someone to even have debt, and listening about people in USA living on credit sounds kind of crazy to me. Sad

davis196

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The BNPL concept is more like a thing from the western world. In my country there aren't any financial companies offering BNPL services.
Buy now pay later is just another form of debt. Is there any serious difference between the BNPL debt and the credit card debt? I don't know, because I'm not an expert. There's nothing wrong with credit card debt, as long as you pay your debt in time. Actually using credit cards and paying this type of debt in time is useful for building a better credit score and affording bigger loans.
Maybe the Federal Reserve will have to increase money printing and lower the interest rates, in order to save the debt bubble in the USA from bursting.

adaseb

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Well credit cards have record balances for 2 reasons.

1) Most credit cards give you usually 1-2% cash back or some bonus so people use them when paying for things and Apple Pay makes it quick to pay for things.

2) Inflation is high so everything costs more so it’s normal that balances will be higher.

So I am not surprised by this at all.

Die_empty

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Quote from: yhiaali3 on January 16, 2023, 10:14:14 PM

Economic culture differs from country to country and from person to person, for example, in countries where income is somewhat limited, such as my country, such programs (BNPL) are very active because people are unable to pay the expensive things they need directly, so the company resorts to these programs until it marketing its products and disposing of the accumulated goods.

Despite the positivity that can be apparent at first sight, other negative aspects quickly become evident because these programs encourage people to buy products that they do not really need, and debts begin to accumulate without realizing, and in the end they fail to pay the debt.

BNPL helps move the economic cycle in the country and helps ease the recession to some extent, but it creates other problems such as a culture of unnecessary consumption and the inability to pay all premiums, so there must be some kind of stricter controls on these programs.

It is true that BNPL schemes assists people in mostly developing economies to buy what they might not be able to afford paying in full. It has also created employment opportunities as well as more revenue avenues to the government.

But in my country this program has been greatly abused. This is because we don't have accurate data to check the financial or debt status of most BNPL customers which have made many of them to buy products that they might not have the financial strength to pay for them. Some of them can even buy products from different BNPL firms by giving false information.

Recently, I got two calls from different BNPL firms that one of my friends that I have not seen for over a decade bought some gadgets from them and used me as his guarantor. And they have been contacting him to pay his monthly payments for the things he bought but he has been avoiding the firm for over three months. I was shocked that these firms didn't contact me when he gave my name and contact as his guarantor. And now they want me to produce him. This is an example of how these firm because of competition reduce thier standard because they want to attract more clients.

yhiaali3

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Economic culture differs from country to country and from person to person, for example, in countries where income is somewhat limited, such as my country, such programs (BNPL) are very active because people are unable to pay the expensive things they need directly, so the company resorts to these programs until it marketing its products and disposing of the accumulated goods.

Despite the positivity that can be apparent at first sight, other negative aspects quickly become evident because these programs encourage people to buy products that they do not really need, and debts begin to accumulate without realizing, and in the end they fail to pay the debt.

BNPL helps move the economic cycle in the country and helps ease the recession to some extent, but it creates other problems such as a culture of unnecessary consumption and the inability to pay all premiums, so there must be some kind of stricter controls on these programs.

Topic: The Buy Now, Pay Later Bubble Is About to Burst (Read 252 times)