Psst—installment plans are worse than credit cards
“Financing doesn’t come cheap: Rates range from 0% to 30% APR, after Affirm checks the buyers’ credit and approves them. That compares to an average APR of almost 17% for credit cards—or zero if you’re paying with cash.”
—Maria LaMagna, “Millennials are financing everything from bed sheets to concert tickets,” MarketWatch.com, 8/17/17
With plastic falling out of fashion (thanks in part to the very smart 2009 CARD Act), credit card companies are offering new incentives to lure in wary millennials. Meanwhile other financial companies are going retro to start collecting interest from the plastic-proof generation. This piece in MarketWatch reports on the new installment plans offered by PayPal, Affirm, and other companies that partner with individual retailers to provide point-of-purchase loans that a consumer can repay over the following months.
Whenever I read about these schemes, I hear the voiceover guy from some local furniture store ad in my head: “Why wait to relax on the sectional sofa of your dreams? Put no money down and furnish your home today!” (Shiver.) It doesn’t matter if today it’s all about fancy sheets or other high end “essentials” that we’ve been told we need to complete our lives.
When buying with a credit card, there are two rules: Don’t buy what you can’t afford. And if you do charge something, pay it off—completely—by the end of the month, so you don’t incur interest. If a credit card is a loan with pretty lousy terms, these new payment plans are worse. As you can tell from the quote above, the interest rates can be downright scary. And over the course of, say, an 18-month installment plan, they can add up to a bundle.
Millennials have been wise to avoid high levels of credit card debt. These installment plans offer the same bill of sale (or worse) by a different name. And a credit card by any other name can still add up to financial trouble.