Digital Edition
The installment plan
Oct
It might not be a good idea to buy now and pay later
Online microloans might lead us into temptation. Are they just a shortcut to overconsumption?
When it comes to big-ticket items like homes and cars, we’re used to living debt large through mortgages and auto financing. Most folks have learned, sometimes the hard way, about the dangers of consumer splurges financed by credit cards. But the emerging phenomenon of debt-propelled small-scale consumption raises new ethical and practical challenges.
These days even the tiniest online shopping order can be interrupted by a digital microfinance hand wave offering shoppers the option of getting their purchase immediately while staggering payments through a short-term loan, usually 12 to 36 months.
These programs resurrect the old department store layaway plan but in reverse: We give you the product up front and you pay us later. Seems like a win-win all around. Consumers get the goods and corporations get their dough while middlemen microlenders like Affirm, AfterPay, and Klarna take a small cut. These loan platforms are innovating what has come to be called the BNPL economy—“buy now, pay later.”
A major positive of these point-of-sale loans is that they create lower-interest alternatives to piling debt onto your perhaps straining credit card. In fact if your credit is good, you can expect zero interest options to make that slightly-out-of-reach, should-I-or-shouldn’t-I purchase seem irresistibly reasonable. The terms of the transactions are typically carefully detailed—a big plus for transparency. Affirm’s founders in fact tout the new platform as a rebel strike against the gouging, dominant, and opaque repayment policies of America’s big bank credit cards.
So what’s the harm? There are some practical family budgeting concerns of course. Consumer Reports found that when consumers made too many of these mini-loan deals, they often lost track of them. A study of one service found that as much as 43 percent of the consumers who used the BNPL option ended up falling into arrears.