Why is this being treated like a new concept? Has the author never heard of layaway? It used to be quite common, and this is a strictly better version imo
Layaway is a different scheme: you pay down the price of a purchase in installments, and receive the item after the last payment. The layaway agreements that I'm aware of don't charge interest.
These schemes are VC-ified installment loans, which operate on the opposite model: you receive the purchase up front, and pay it down over time including interest payments.
They're arguably better on a strictly economic scale, since they give consumers the liquidity to make purchases that they'd like to make (and can actually afford, just not all at once.) They're arguably worse on a social scale, since installment loans are a form of cheap credit that people get addicted to, and are comparatively unregulated.
I bought something off Amazon with Affirm, wasn't charged interest. I think they make money by partnering with companies like Amazon to promote more buyers and get a cut of sales from them instead of the consumer.
Out of curiosity, what were the repayment terms? I see on their website that they offer 0% APR on some of their shortest financings, so I wonder if you were bucketed into one of those.
(I would personally consider doing installments at 0%, so I'm curious as to whether you were given an advantageous plan based on a credit check or whether it was the timescale.)
I think you are correct about it being timescale-based.
I only used it once out of pure curiosity, so idk all of the intricate details, but they essentially offered a 4 equal monthly payments plan with 0% interest, as long as I pay it off on time. Tested it, worked as promised, all was good.
I bet if you go outside of their deadlines for payments/try to stretch it for longer, you will get hit with massive interest rates tho, but cannot confirm that. Mostly because I only use credit for things I can easily pay off in cash at any moment (except things like car/house obv), so I basically treat it like a debit card and pay it off very pedantically on time (because with 0% interest, it is essentially just extra leverage).
It was something like 6 payments at 0% interest so I took advantage of it. It was just offered as a payment option on the Amazon link. I'm seeing that now for condos I'm looking at renting next year too. While I can pay cash up front or just put on my credit card, I'd rather it sit and generate whatever small amount of interest and just use this to pay off my vacation over a few months with no interest.
Most of the ones I've seen had no interest, so that's new to me. Definitely changes it but I think it's a little disingenuous for the author to not at least reference layaway
For what it's worth, layaway isn't common in the US anymore. It's entirely possible they didn't know about it, or don't consider it worth mentioning because the couldn't find an example of a company actually offering it anymore.
The article was written in 2017, and mentions an APR of 19% for a $200 purchase via Affirm. Looking online it looks like their current rates are around 10-13% unless you pick the shortest term loan[1].
It depends on risk. I lost my job and ended up tanking my credit score after several thousand in credit cards went to collection. Affirm offered me 29.99% APR for purchases.
I never really got the point of layaway. I give you money and you keep it interest-free until I pay for the item? Why not just put it into my own savings account and at least get interest on it?
It was a concept designed for the low- to middle-class in a very different era than what we have now. Especially in rural areas, banks were not often used by those who probably needed them the most, for a variety of reasons. Lots of workers were either paid in cash, or cashed their paycheck weekly at the local grocery/department/liquor store.
Even today, lots of people have the issue where if they _have_ money, they are compelled to spend it on frivolous things like entertainment and alcohol. Layaway was an easy and convenient tool that people could use to make sure they were putting at least some of their money toward things they really wanted.
For me, the point of layaway is that I want something enough to commit to paying for it in advance a little at a time. A savings accounts is fungible; it isn't necessarily dedicated to anything and subject to me raiding it if I need to cover an unexpected expense.
Incidentally, where do you live that the interest on a mere savings account is worthwhile on a timescale of years rather than decades or centuries? Or am I taking "savings account" too literally when you mean things like certificates of deposit or money-market accounts?
> For me, the point of layaway is that I want something enough to commit to paying for it in advance a little at a time. A savings accounts is fungible; it isn't necessarily dedicated to anything and subject to me raiding it if I need to cover an unexpected expense.
For what purpose are they not fit? They can do the same thing paying for layaway would, plus you get the protection of being able to use it for unexpected expenses.
> Why not just put it into my own savings account and at least get interest on it?
Because if it's immediately available in a savings account, the vast majority of people are much more likely to spend it on something else. The appeal of layaway is the willpower enforcement - worth the price of whatever pocket change you're likely to get in savings-account interest.
I always thought layaway was just used to lock in a sale price, so essentially, a customer is betting that the payment now plus the foregone interest/investment return in the payment will be less than the future sale price.
These schemes are VC-ified installment loans, which operate on the opposite model: you receive the purchase up front, and pay it down over time including interest payments.
They're arguably better on a strictly economic scale, since they give consumers the liquidity to make purchases that they'd like to make (and can actually afford, just not all at once.) They're arguably worse on a social scale, since installment loans are a form of cheap credit that people get addicted to, and are comparatively unregulated.