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EconomicsELI5 How do companies like Klarna and Afterpay make money without charging interest?(self.explainlikeimfive)
I see these companies offering installment payment options for online purchases but they don't charg...
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Are those services set up to auto pay by default? I wonder if it's people just forgetting to log in to make a payment
It’s a gamble. If you can’t afford something for $100. There’s a decent chance your bank account won’t have $25 in it when one of the auto payment hits.
Especially if you do this often and have a lot of them
So it's just a credit card with no rewards?
I work (somewhat indirectly) in this industry and yes, the internal discussion is that BNPL is the “new” version of the credit card for Gen Z. It allows you to buy using payments without a real credit history, without annual fees, etc, while still allowing the merchant to make the sale on something that might otherwise not have been within reach to that buyer.
It’s a little gross, but I’m conflicted because I feel like credit cards are already predatory so anyone threatening their model might be a good thing.
Credit card rewards are pretty much scam anyway to try to get people to use them more than they should.
I disagree with them being a scam to incentivise people to spend more than they normally would. They definitely incentivise you to pay with a CC over cash or a debit card, but I've never felt like I should go spend more money in order to get CC rewards lol
Statistically, people spen more with a card than with cash. You feel the price less when you don't see anything physically leave you. It's one of the selling points of credit cards to businesses.
Maybe you don't because you're actually financially responsible. There are many people out there who aren't and get taken advantage of by these offers because they think they are actually getting a good deal. But really a $2 return on a $100 loan with 10% interest is just a $100 loan at 8% interest which is essentially what these rewards programs are when you break down the math. Many people can't control their CC spending habits and that's where these companies offering these easy to get loan make their money.
For the financially illiterate. For financially literate they’re super dope
This thread is full of such nonsense.
not really credit… more like lay a way but you get the merchandise first
Yes, they'll take the money automatically each month, so that's not the factor. A good chunk of people who use these apps are just bad with finances and don't have the money when it's time to pay. If you use them responsibly, they work well.
Idk how you could ever use these apps responsibly. Do they work for large payments, or just like a burrito or something?
These apps are no different from credit cards, if you use them responsibly. You simply spread the cost over several months without any additional fees. As long as you make the payments on time, you only pay for what the product costs, nothing more. There's probably a limit, but I'm not sure about the specific sum, and Klarna themselves don't say. I assume it depends on your credit score.
Credit cards often come with some kind of cash back or reward for using them. I'm guessing these apps don't have that?
Credit card cash back is never worth it anyway. It's usually something like 2% cash back but the interest rate is something like 10% or above after the first year of the card being active or there's no delay to interest to begin with. In the end it's a gimmick to get people to use the card more because they feel like they're getting a discount when really they are paying much more in interest that what they are getting back in rewards.
It's only not worth it if you're buying more stuff than you can afford lol
Yeah exactly, it's literally free money if you pay your cards off every month.
Yes which is a common thing for people to do lol
The US has absolute tons of people in it that are not financially responsible enough to use loans to their advantage.
These companies know they are giving loans out to irresponsible people but are only highlighting the benefits to them as a marketing tactic.
You can completely avoid interest on a credit card by paying the statement before the due date.
I’ve earned thousands in credit card rewards. Never paid a dime in interest.
In what world is 2% cashback not free money? Why do you pay credit card interest?