Credit scores will tank further
replies(3):
"The industry has long believed that consumers using BNPL responsibly should result in positive credit scores, as the majority of users are paying back in full and on time."
The real question is what are the delinquency and default rates for BNPL as compared to other forms of consumer credit.
Given the previous understanding that it didn't hit your FICO, the retailer subsidy as a sales lead, and the types of products people were financing.. one might assume worse..
To me this seems like a new product that would target a different consumer than the one that makes payments on time. But I would like if someone challenges this view. Thanks!
Slightly longer repayment time frames. (Multiple months instead of just one.)
2. BNPL often has short durations (3 months) so it’s not a long term problem for people with BNPL if they pay it all back.
For small puchases with short repayment periods? Not a clue.
A bunch of tiny loans does not loom good
I successfully applied for a mortgage with ~30 credit cards open. Nobody batted an eye, or even commented on it. They looked at balances and credit score. Balances were almost all zero and credit score was excellent.
A hundred small loans that were all paid off on time over the last decade is extremely helpful getting you a mortgage, it doesn't hurt.
Not the same.
> hundred small loans that were all paid off on time over the last decade is extremely helpful getting you a mortgage
Again, not the same.
Affirm can be worse than credit cards because credit cards are a single line of credit of X size. The people using it don’t realize that a bunch of tiny lines of credit add up to a larger one ultimately and they can find themselves overleveraged.
I’ve used them several times, mostly because they are relatively cheap forms of credit for short durations (<12 months). I have plenty of credit available via traditional credit cards, but BNPL —- to this point —- haven’t reported usage rates to the bureaus.
Last summer our A/C went out. It ended up being about $4.5k to replace, and it was a heat emergency at the time. So I put the whole thing on Affirm for three months, at 0% interest. I paid about $50 in fees. That got us through the immediate emergency and gave me time to shop around for a better way to fund it.
I ended up taking out an auto loan with my credit union. The rates were much cheaper than a personal/unsecured loan, and I have three vehicles in the driveway without liens. The loan was for four years, but I’ve already paid it off.
In a tighter situation, BNPL not impacting your credit utilization rates is a big benefit.
I started by always choosing the shortest “plan”, which was 0% and no fees. After I’d paid off a few of those, I started getting offered plans of up to a year with no interest and very minimal fees.
Now, while I don’t use Affirm for luxury/unnecessary purchases, it offers better rates than any credit card I have, and better than a bank loan in many cases.
I have three Affirm loans right now, for a total of about $8k. All three of those are business expenses, and all three have increased profit in our business significantly more than they cost us.