[L_Rahman]

0% APR over 12 months for a big ticket purchase like a mattress in an inflationary environment and a bull market can easily equal an additional 5-7% discount on 2000 dollars.

Admittedly this is not how most people are using Affirm, but it's definitely been useful to me in that way.

[jerf]

Only if you have a source of post-inflation dollars, such as, your salary having been adjusted for inflation in the meantime, or you've sold inflated commodities recently at a post-inflation price, perhaps a used car that appreciated over the purchase term. If you are stuck with pre-inflation dollars this is no advantage.

You should not simply assume that you have access to more dollars just because inflation is rising. If your prices go up but your income does not, or your income significantly lags (anyone who got a pre-emptive inflation raise let me know, otherwise it always lags), you're paying for today's inflation with dollars from last year.

[30367286]

Yeah, the trick on taking out low interest loans is they have to be long term, like a mortgage. Over 30 years, I'm definitely paying it back in post-inflation dollars. In one year? Not really. I'd have to get a raise on, like, the day I took out the loan.

[cogman10]

Bingo. That's why I've done payment plans as well. Not because I couldn't just buy the thing, but because spreading the payments out over 12 months means more investment capital.

[after_care]

> because spreading the payments out over 12 months means more investment capital

This is essentially borrowing money to invest. It doesn't matter if the investment makes money or loses money the lender will expect payment. This strategy can make a lot of money, but it's also ruined many people. One key thing to watch while implementing this strategy is your debt to assets ratio. Also understand that during a market crash this ratio might change suddenly and dramatically.

I don't make small (sub $10k) purchases on credit, period. Not only is it somewhat risky but it also encourages overspending because it makes the 'pain' of spending money decrease. As for your $2000 mattress, I saved way more money by buying a $600 mattress instead and I sleep like a rock.

[knodi123]

> This is essentially borrowing money to invest

Yeah, I don't know why more people don't see it this way.

Everyone seems to agree that you shouldn't eagerly make extra mortgage payments to pay off your home loan ASAP. Because you can pay it off over 30 years and presumably make more $$ investing than whatever paltry interest rate you had on your home loan.

But the same people can't explain why it's a bad idea to take out a 2nd mortgage to invest in the market, or even secure a low-interest loan with your home as collateral. But isn't it exactly the same thing?

[hiq]

> But the same people can't explain why it's a bad idea to take out a 2nd mortgage to invest in the market, or even secure a low-interest loan with your home as collateral. But isn't it exactly the same thing?

So what was their reasoning?

In the end it's all math, where some numbers are random variables with the corresponding variance. So this all depends on what rate you get, what returns you expect from the market, what's your risk tolerance, etc.

[antifa]

A second mortgage is extra risk to a person's most important asset which is typically reserved for funding a major home improvement project or for emergencies.

The "$2000 0% APR mattress loan" is useful because $167/ month is much easier to budget for and doesn't require a huge hit to savings.

One of these is just sane budging, the other is minmax gambling.

[knodi123]

> A second mortgage is extra risk to a person's most important asset

Okay, fine, so that's the reason we don't like borrowing money to invest.

Now explain why it's good to have a mortgage at all? Don't just say "because a couple hundred a month is a small number". That's not a reason, it's just a single, incredibly subjective and situational factoid. Is there a logical or mathematical reason not to increase the amount of my mortgage as long as I can easily afford the monthly payment?

[cogman10]

> Not only is it somewhat risky

Sort of depends on the investments doesn't it?

Sure, if you sink every penny into penny stocks or crypto you are definitely running a huge gamble. On the other hand, there are non-stock market investments that are perfectly safe. Go grab some TIPS/iBonds for the full amount of purchase. Or maybe go a little riskier and grab some bond index funds. Both of those options aren't playing the stock market.

If you wanted something a little more risky but not "throw it all on GME" then grab an ETF like VOO or VTI.

Obviously do what you like. I'm pretty comfortable with my ability to pay off my obligations.

[after_care]

Plenty of rock solid investments have failed throughout history. :).

I would never tell anyone how to spend their money, I'm just bringing up a counter point to the conversation.

[cwkoss]

Over the past few years, borrowing money at 0%APR to put into the stock market has been very profitable.

A lot of people are probably getting used to that idea, and if/when the market turns its going to be messy.

[ei8ths]

that's exactly why I do the free 0% for 1 year on big payment plans. Let me keep my money in my investments longer. Yes I do have the money, but I don't want to easily give it up. Paypal just introduced like a 'spread the payments out for 3 months' options with 0% interest. Its awesome stuff.

[WYepQ4dNnG]

That's exactly how I have used Affirm in the past ;)

[antihero]

If you pay your balance in full each month every card is 0% forever, at least in the U.K.

[tehwebguy]

At this moment in the US at least Bank of America, Discover, Chase, Citi & Capital One have publicly available offers for cards with 15 - 18 months of zero interest. All but the Chase (Slate) & Citi (Diamond) offer rewards of 1% back or better.

It is very common to get a credit limit in the range of $10-20k on these cards, one could easily put all expenses on a 0% interest card, make minimum payments and put the amount of the statement balance in a high yield savings account until the promotional interest ends.

In total one would get negative interest in the amount of the rewards (say 1.25% average) plus the 15+ month yield on the cash stored away.

[chrisweekly]

That's basically what I do: put most purchases on a decent Chase rewards card, and pay the statement balance each month. I haven't paid a penny of credit card interest in many years.

[horsawlarway]

This is also true in the US - but not at all what the parent comment meant.

If you pay the balance in full every month - you have spent $2000 on a $2000 mattress by the end of the month. This exposes you to ~30 days of inflation and you will have paid no interest.

If you pay 0% APR over a twelve month period, and make installment payments until making a single lump sum to close out the line of credit at the end of twelve months - you are exposed to something closer to ~365 days of inflation (depending on the installment payments and the lump sum). You will have also paid no interest.

If we assume roughly 7% yearly inflation, you're paying less real value if you take option number two, because you will have paid $2000, but that same mattress is now worth ~$2140 - You are abusing the time differential between purchase and payment to receive a discount.

That said - this is not the majority of folks using these services.

[bena]

Minus the depreciation of using the mattress for a year.

[horsawlarway]

Ok - maybe it's more clear if I phrase it this way:

You paid 2022 dollars for a mattress priced in 2021 dollars. Because of inflation, 2022 dollars are worth less than 2021 dollars (each 2022 dollar is worth ~93% of a 2021 dollar, if we have ~7% inflation)

The mattress would have cost you $2000 2021 dollars if you paid for it immediately. But because you paid the 2021 price tag with 2022 dollars, you are receiving a discount: 2000 * .93 = $1860. You are only paying $1860 2021 dollars, vs the 2000 you would have paid.

Now - and this is very important - none of this matters if you're just shoving those dollars under your mattress for a year. You have to be taking advantage of the inflation by buying an asset that holds its real value over time, and then exchanging it back for the nominal value in 2022.

As an example - assume that we have ~7% inflation, and the total stock market is exactly flat: it neither gains nor loses value compared to inflation (its real value stays the same). You have exactly $2000, and the mattress costs exactly $2000.

Option 1: you pay right now. End result: you have 0 dollars.

Option 2: you pay one year from now, and invest the 2000 in the market until then. End result: after 1 year, when you sell you investments, you have 2140 dollars. you pay 2000 for the mattress. End result: you have 140 dollars.

That's the discount.

Now - the Corollary to this is that you have taken on risk. It's possible that the asset you buy won't hold real value compared to inflation. So while you stand to potentially make 140 bucks in a neutral situation, you also might end up losing money on the assets you buy, and not being able to pay the 2000 dollars.

Such is life.

[kodah]

Same thing in the US, that's how I use my cards. They're a proxy for purchase and identity protection.

[asdfasgasdgasdg]

Yes, but then you aren't using it as a 12 month loan. You're using it as a one month loan. That is explicitly not what the person you're responding to is looking for.