Banks View Heavy 'Buy Now, Pay Later' Use as Red Flag for Loan Approvals (msn.com) 64
Banks are treating "buy now, pay later" services with suspicion and warn that heavy usage could hurt customers' chances of getting approved for mortgages or credit cards. FICO will begin factoring some BNPL loans from companies like Affirm and Klarna into credit scores later this year through its new scoring model. JPMorgan Chase and Capital One have banned customers from using credit cards to pay down BNPL installment loans, while one credit union actively calls members who use BNPL to counsel them against it. BNPL transaction volume is expected to reach $116.67 billion in 2025, up from $13.88 billion in 2020, according to Emarketer.
Pigsty Muddy (Score:5, Informative)
Wow, someone holding a lot of debt makes them a poor candidate to take on further debt?
Gotta say I'm impressed. This may be the least newsworthy story I've seen on Slashdot yet. With a few tweaks in wording, this story could've been published in the sixteenth century. And still been a major duh.
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I have accounts with 3 banks with available forms of credit totalling about $100k, 95%+ of which I don't use.
And they keep sending me preapproval notices to add $15k here, another $15k there. They are quite happy with debt.
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I have accounts with 3 banks with available forms of credit totalling about $100k, 95%+ of which I don't use.
And they keep sending me preapproval notices to add $15k here, another $15k there. They are quite happy with debt.
Those credit lines are, practically a trap. If you were to start carrying say $50k or $75K worth of debt, even w/ zero late payments you'd see your FICO score drop considerably because your "credit utilization" (fraction of available credit) has gone up. And then you might see your interest rates increase on all those cards, even on the CCs you don't carry a balance on.
i know they're ubiquitous in the US and very convenient, but if you really stand back to look at how they operate (esp. over the past 2
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That's not a trap at all, because if he didn't have all that unused credit, his "credit utilization" would be high even if he carried little debt.
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they're clearly very interested in keeping the convenience users. Which implied they're making money from them.
Primarily because that's where the people carrying balances come from.
Here's how a Federal Reserve report puts it. note that the transaction function is "slightly negative"
we decompose credit card profitability into its main sources— the credit function, the transaction function, and fees—and present three main findings. First, we find that, on average, the credit function makes up approximately 80 percent of the credit card profitability, whereas the contribution of the transaction function is slightly negative, as rewards and other expenses on credit card transactions outpace banks' interchange revenues.5 In addition, fees—in particular late fees—comprise approximately 15 percent of credit card profitability.
https://ancillary-proxy.atarimworker.io?url=https%3A%2F%2Fwww.federalreserve.gov... [federalreserve.gov]
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The problem with this idea is that 39% of the transaction volume and probably about a third of active accounts are "transactors". The credit card companies lose money on these people, and yet they keep trying to attract more of them? It doesn't make sense; the credit card companies are not trying to lose money. More likely that report is simply wrong. Here's another report [mckinsey.com] showing a small but positive profit for transactors (and less risk).
If credit card companies were losing money on transactors, they
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I think it says a great deal about bankers.
Re:Pigsty Muddy (Score:4, Insightful)
It'll be the priorities, rather than the debt itself. Someone inclined to spend so impulsively hasn't got their priorities in order.
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don't think it's a matter of amount of debt.. that was always part of the calculus for loans... The offerings from other BNPL is eating into their own revenue since instead of using their credit card with an interest rate and other fees, you can use BNPL offerings that often offer zero interest on the installments so the buyer actually saves money.
This is simply a protectionist move by the banks to safeguard their own revenue streams and it's bullshit... defaulting on BNPL payments is one thing... but usin
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defaulting on BNPL payments is one thing... but using them shouldn't have any impact.. it's no different than using a credit card and making installment payments to pay off the debt there which weirdly- is encouraged to build your credit.
Almost, but not quite. Merely using these is not necessarily a problem, but TFA only talks about one "community bank" arguably/maybe taking that position. TFA mentions people missing payments, which is a sign of credit risk. It also mentions rolling over BNPL debt into credit card debt (specifically, that some banks prohibit this, which undercuts your suggestion that the banks are only in it for profit through interest and fees). TFA also discusses people using BNPL plans to pay for rapidly consumed goo
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It also mentions rolling over BNPL debt into credit card debt
This is like using one credit card to pay the bill from another.
Imagine for a second that was unrestricted. You could delay Credit card A's payment due this month indefinitely by paying it down to zero using Credit card B. Then, the following month after Credit card B's statement closes pay it down to zero using credit card A before card B's deadline.
You have in this case: 1. Not paid any interest, since you paid both balances down to
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the rolling over BNPL debt into credit card debt isn't in their interest as much as making the use of BNPL as inconvenient as possible... the amount of people that could just use the credit card vs BNPL vs the fraction of the people using BNPL wanting to make a payment with a credit card... the former is much larger than the latter. IF they make it inconvenient, and riskier to your credit rating... you're much more likely to just use THEIR credit card.
Using BNPL for rapidly consumed good like groceries dif
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Wow, someone holding a lot of debt makes them a poor candidate to take on further debt?
Gotta say I'm impressed. This may be the least newsworthy story I've seen on Slashdot yet. With a few tweaks in wording, this story could've been published in the sixteenth century. And still been a major duh.
No, someone with lots of debt is clearly in capable of handling more debt. /HomerSimpsonLogic
What annoys and confounds me is that someone who lives their life with little or no debt is considered a bigger risk because he hasn't been borrowing money their entire life. So someone who saves, buys things outright, pays their bills on time from their own money is more of a risk than someone who uses their entire pay cheque to service last months debt so they are forced to put next month's expenses and rent on
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It's annoying but it's true. If you don't have a history of borrowing and paying back debt, you're a higher risk to not pay back new debt than if you do. Fortunately, this has been well known for decades, so if you are financially responsible you can simply use credit cards (paid off within the grace period -- you don't need to carry a balance) to build a credit history.
The usual objection to this is the credit card becomes a temptation to overspend. Well, yes, but that's part of the reason lenders find
Well, duh (Score:5, Insightful)
Banks are treating "buy now, pay later" services with suspicion and warn that heavy usage could hurt customers' chances of getting approved for mortgages or credit cards.
Third-party BNPL loans compete with bank's BNPL services - credit cards and mortgages.
Also, how are they not like a credit-card purchase, or any other short-term, unsecured loan? Are they for people that can't get a CC? If so, then it sounds like banks wouldn't give them a CC or mortgage anyway.
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I don't think they traditionally did hard credit checks (or necessarily any, though they do seem to account for varying interest rates, so they probably do soft checks).
Because they weren't hitting credit reports it was creating shadow lending and the companies pushed it more and more.
In theory it's low(ish) interest rate if you pay in 2 months (4 payments), but then it shoots up.
A lot of people with minimal credit histories are accumulating small 4 figures of revolving debt off the record, and banks don't
re: shadow lending (Score:2)
I think you're correct. But I'd also just point out that society seems to be on a trajectory of making everyone's purchases 100% tracked and analyzed.
With recent legislation requiring services like PayPal, CashApp and Venmo to report income to the IRS? There's really nothing left anymore besides a cash transaction that flies under that radar. And we're seeing the push to reduce the use of cash. (Remember all the places that stopped accepting it during COVID, with claims they feared the virus getting trans
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They are different because they are interest free (unless you miss payments). I used one for a purchase on Amazon last year because it was automatically approved (on account of my already having an Amazon master card). I had the cash on hand, but I wanted to try the BNPL. It really was interest free, the monthly charge went onto my credit card (which I pay off 100% every month) and the result led to no issues.
The thing is... it actually kind of annoyed me, having that extra monthly expense. I would have pr
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Why would you only make the minimum payment on a credit card? You shouldn't charge more on a card than you can pay off at the end of the month. Their interest rates are usurious. If you need to borrow more money than that, take a personal loan.
And the whole point of BNPL is spreading out the charges enough that you can afford to pay that amount every month. If you're not able to do that, then you shouldn't have made the purchase.
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Some cards offer an interest free period, in which case there's absolutely no reason to pay more than the minimum payment even if you can. You can earn interest from that money somewhere else during the interest free period on the card, and then pay off the card when the interest free period ends.
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Some cards offer an interest free period, in which case there's absolutely no reason to pay more than the minimum payment even if you can. You can earn interest from that money somewhere else during the interest free period on the card, and then pay off the card when the interest free period ends.
The caveat, of course, is that if you screw up and accidentally miss a payment, you likely get hit hard with interest, so this can be risky. Also, if you can't pay it off at the end of the interest-free period because you didn't plan for that well enough, again, you get hurt badly. So it's a calculated risk.
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I also pay off my CC in full every month, and therefore pay no interest, so this kind of thing wouldn't be for me. Thankfully, I'm in a position where I can do that. This kinda seems like store lay-away programs, but you get the item up front rather than after paying it off.
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Third-party BNPL loans compete with bank's BNPL services - credit cards and mortgages.
BNPL do not compete with credit cards or mortgages. They are very different lending mechanism with very different repayment terms and risks. Credit cards form rolling payments, and mortgages are high value items based on a very different risk analysis process.
Putting the three in the same sentence comparatively shows you don't understand the topic in the slightest.
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I get your points, thanks. My commentary was (a) mainly a joke and (b) ya, that I don't get the appeal of BNPL -- though, as someone who pays off their CC in full every month, and paid off his 30y mortgage in 18y, I'm probably not in the target demographic. Except for emergencies, which people should at least try to save and reserve something for, for most things, if you can't pay for it, don't buy it on credit, save up for it. All in all, I'm guessing it's probably a good thing that these things will f
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(a) mainly a joke
Give a man a smiley. So much context of language is lost on the internet. It will help avoid problems in the future ;-)
Re:Social Credit (Score:4, Informative)
CC vs debit (Score:2)
Something that bugged me. My (major) bank issued me both credit card and debit card. They counseled me to only use the credit card because it has fraud protection. And recently now I got a $10 fraudulent charge against my card. If the bank is issuing both cards and I am using it well within my balance for recurring billing and the like, why can't they cover both? When I called the credit card people they said the bank covers it. It's like it is the same people..
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With credit cards, fraud protection by US law covers the entire fraudulent transaction -- the bank is on the hook, not you, provided you report the fraud in a timely manner. With debit cards, the law allows up to $50 to be your problem even if you report it immediately. Some banks do provide "zero-liability" protection which covers all of it, but not all do. But even there, because the money comes directly out of your account, you're out the money until you report the fraud and the bank investigates. Wi
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huh. was just looking into this when typing this and the law allows $50 to be your problem for CCs also, it's just that everyone in the US tends to do "zero liability". For debit it appears to be $50 in first 2 days. $500 in first 60 days. ?
But overall you're right, it's the law. As much as it pains me to admit, this is an example where government (i.e. a law passed by Congress) made things more pro-consumer:
As OP said... same bank, same customer. (so that controls for a LOT of variables like cred
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I am not sure how most other debit cards work, but with WF, my checking account debit card can be used at most places as a CC by not entering a PIN at the time of check out.
It's the PIN that puts you on the hook since a thief would not know that.
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It's the PIN that puts you on the hook since a thief would not know that.
Unless the thief used a skimmer when they copied your card. Or compromised a banking system and stole the card and PIN. Or stole the card and the piece of paper from the bank providing your PIN. Or the thief stole the card and drugged the customer in order to get the PIN and make them lose their short term memory of events.
No shit, Sherlock. (Score:3, Insightful)
People who normalise taking loans and/or accumulate a lot of (deferred) debt are a major risk when taking on more debt. So what's new?
Credit Card with interest Good! - Free Credit Bad! (Score:1)
BNPL loans typically have no interest if you pay them off on schedule. Basically the same as using a credit card. Except perhaps the merchant doesn't have to pay VISA a fee.
There is certainly reason to consider the outstanding debt someone has in determining their credit worthiness. But the fact that someone used BNPL and paid it off should improve their credit score, not hurt it. Just like paying off any other debt. I suspect one problem for credit bureaus is there is no identifiable limit on BNPL loans.
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Banks don't like it when you dodge the interest and fees on their credit cards.
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Banks don't like it when you dodge the interest and fees on their credit cards.
We have a fee-less credit card that has had a balance of over $1000 for the last ten years and I have never paid a cent of interest.
VISA makes money from interest, but they make a lot of money from merchant fees as well. Merchants are now starting to pass those fees along directly to the card user instead of including them in their pricing for everyone. So our free loan may get smaller.
Everyone should be buying stuff on credit and paying the balance off at the end of the month to avoid interest payments.
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eh, if someone is paying massive percent of their income to service debt of course they should not be loaned a large amount of money.
Of course outstanding debt impacts credit worthiness!
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People that do not know how to manage money... (Score:2)
... are a bad credit risk? I mean, this one seems very, very obvious.
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You may also know how to manage money, but not make enough of it to live. In the US, there isn't much of a social safety net and, what exists currently is being eroded away at every opportunity.
People love the services that the working class serfs provide but then blame them for not being able to afford being alive.
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Sorry, but I do not buy that, except as an exception. And voting for somebody that makes your financial problems much worse does count under "know knowing how to manage money" to me. Most of the MAGAs are basically fucking themselves with a wirebrush and are deep in denial about that.
BNPL, the "crediário" of the 21st century (Score:2)
In my country, we've had BNPL since the 1950s. Here, we call it "crediário". It's been the primary means of making large purchases for most people ever since.
And, yes, of course, if you have too many of them, it may hurt your credit score.
But there's an odd downside of it: if you never make any BNPL purchase, it may also hurt your score, as credit companies then can't know if you're a good payer or not.
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Yes and so it's hilarious my credit score isn't a perfect 850 but 822... because I always pay credit card balances at end of month and never ever carry.
Not that it really matters, I'm not going to borrow money anyway. Borrowers become losers and debtors; it's a trap!
It's about control (Score:2)
This has nothing at all to do with your trustworthiness as a borrower; this is entirely focused on controlling your choice of lenders. A "BNPL" loan is a zero interest loan which -- critically -- didn't come from the bank. Obviously, these loans directly competes with the banks' business model... they can't very well have that.
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I don't necessarily disagree with you in terms of the banks' motivations here, but - BNPL loans may be zero interest, but they (obviously) do create a future obligation of payment that counts against one's future earnings. It does make sense that they would affect one's credit worthiness.
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BNPL loans may be zero interest, but they (obviously) do create a future obligation of payment that counts against one's future earnings. It does make sense that they would affect one's credit worthiness.
Yes, but successfully paying them off should improve your credit score, and successfully paying off lots of them should increase it more. I guess they typically aren't reported?
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Yes, but successfully paying them off should improve your credit score, and successfully paying off lots of them should increase it more. I guess they typically aren't reported?
Yeah, that's what it sounds like. I would agree they definitely should be treated like any other credit (which it seems is starting to happen, I think, based on TFS).
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Yes, but successfully paying them off should improve your credit score
Assuming that these BNPL outfits work within the credit reporting infrastructure. I don't know, I don't use them. Being a great fan of the Save Now, Buy Later group.
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I'm not a fan of the BNPL concept either... but lots of places are pushing it hard. Including our own bank, of all places.
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but lots of places are pushing it hard
Consuuuuuuuume!
2008 anyone? (Score:2)
Hm?
Anyone hungry for a lil 2008?
How about a big portion? Bigger than in your wildest dreams.
Coming soon, to a reality near you.
Of course they do (Score:2)
Why wouldn't they?
Paying off every month is a red flag too (Score:2)
Such bullshit behavior by banks. I recently got an auto loan. I didn't need one but I figured it would be a good bargaining chip with the dealer (also a scumbag). I have a credit score that's 800 or better depending on the source. My plan was to get the loan and pay it off right away. That's when thing started to get sketchy. I got letters from four different lenders including the manufacturer's own financing arm saying that I didn't qualify for a loan. That's when the trouble really started. I had
"Pay in Four" is really "Pay in Two" (Score:2)
"Pay in Four" is really "Pay in Two" because all credit card billing periods are four weeks long. The rubes using "Pay in Four" don't realize that two of the billing cycles of the loan go into one credit card billing period. Therefore, it's "Pay in Two."
But if they pay the loans back on time... (Score:2)