Written by Andrew Roth, Operations Manager
Like some people, my most productive thinking happens in the shower. I couldn’t shake something I’ve recently noticed online - the option to split payments on a huge array of consumer goods and impulse-buys. As I considered the benefits of splitting a payment for sneakers into six installments, I incredulously found myself saying “Wait, I can finance my Nikes?”
Then the questions hit me. What are the interest rates? Who profits from this? How many people are using this? My curiosity persisted.
From what I can gather, the growth of companies offering online installment payments outside of normal credit card channels or in conjunction with them, has skyrocketed. There appear to be several companies interested in extending credit to all types of consumers, apparently collateralized on nothing more than used clothing and the demand for their services.
Names such as Affirm, Afterpay, Klarna, Quadpay and others litter the online landscape through company websites, social media, and Instagram ads tempting consumers to split payments on everything from sneakers to designer clothing, electronics, home-goods and more. As early as 2018, the largest of these companies were doing billions of dollars in sales. While installment payments are nothing new, it seems to make these arrangements so accessible that unwitting consumers could find themselves burdened with financed payments on things they never really needed to begin with.
Don’t call me a hypocrite, I use a credit card as much as my other fellow “Millennials,” but I’d like to think I pay it off monthly, and only really finance my essentials including my mortgage, car payment, etc. Everyone is in a different financial position, but those of us who are closely budgeting are also most vulnerable to splurge using installment payments as a crutch.
I’m also curious about the fees that consumers are paying for these “solutions.” Some of these services charge an explicit interest rate (what is the APR on sneakers?), while others bury fees in the fine print. If there are no fees at all, someone must be footing the bill. Maybe retailers are inflating pricing to cover the difference? How much total debt is floated right now on installment plans for trendy home décor? Surely Wall Street won’t miss an opportunity to bundle these “loans” into securities? Who will pioneer securitized consumer sneaker debt? Think about the opportunities!
I’m a little self-conscious that this sounds like a public service announcement, or maybe I just remind myself of an irritated Andy Rooney doing his bit on 60 Minutes, but I wanted to put this out there. If there is a larger message about our culture, I’ll let you interpret that for yourself.
The next time you see one of these offers pop up while online shopping, pause and ask, what would your financial advisor say?