Should You Finance Your Holiday Purchases?
This year when you go to your favorite stores for some Black Friday haul, don’t think about the best deal only, but also decide if you want to extend your cash time in your wallet a little longer and get those purchases financed. Yes, you heard it right - financing is available on most items, even toys and clothes.
Walmart is a pioneer in this trend and offers electronics, furniture, sporting goods, and even small purchases to be financed as an alternative to cash or credit card payments.
It’s very simple for you – the amount of purchase will be broken into monthly payments with a small interest for borrowing.
Many other retailers are following Walmart because as long as they will get your money, they don’t really care when. Those short term loans are called point-of-sale loans and will likely be major drivers of sales this holiday season.
Buyers vary and so do their needs. Some will be buying a $140 shimmering sweater from Anthropology and desire to pay for it in 4 payments of $35 with Afterpay online. Others will want a $1,300 watch from Shinola for 12 months payments of $105.14 with annual 10% percentage rate. I guess we spoke about that small interest too early after all.
Affirm from Silicon Valley has point-of-sale financing partnerships not only with Walmart, but also with Shinola, Warby Parker, Delta Vacations, Casper, StockX, Ring, and American Girl to name just a few. Affirm app works for buying everything else.
So what is this new trend? Is it a good way to save some money for longer? Or is it just another way to get us to buy things we can’t afford and pay 30% interest for gifts?
New Affirm program marketers say that such gift buying is great for people who want to control their debt and can’t get a credit card due to their credit history. Those new loans use methods to calculate your likelihood of paying on time and even ask to see your checking account transactions, but they focus less on traditional credit check.
Some experts agree that this strategy might work better for consumers who like to be late and thus are afraid of credit cards and their late fees.
Point-of-sale financing emphasizes that you will have to make a fixed low number of payments instead of having to carry credit card debt for years if paying only minimum fees. Most of installment plans don’t even have a late fee, so you won’t get slapped with $35 fee just for being a day late. One such late fee and it becomes more expensive then 30% APR with traditional credit cards.
Furniture stores have been offering installment payment plans for years, but you could not do that on toys or sweaters before. Today, thanks to technology, you will be able to get a little financing like that anywhere instantly. That same goes for services too.
Many people enjoy the opportunity to pay like that for big unplanned purchases or emergencies, think car tires or a house roof. You can finance those expenses, break them down, and pay them in 3 months with 30% interest, which on $600 price for tires wouldn’t even be noticeable.
But what about purchases of toys, you say? Toys are different, according to many consumers, if you can’t afford a toy, maybe you shouldn’t buy it at all instead of getting more debt for unnecessary stuff.
Black Friday is a bit different. You do want to make everybody on your list happy and paying for every gadget all at once might be too much for your wallet. On a day like this many big deals and big purchases might carry 0% interest rate for installment payment plan. Our advice is to go for it as long as you understand the financing terms and are happy with your interest rate or lack of it.
Consider for example a $2,245 Peloton Bike for this Christmas. You can pay the entire amount and be done with it or you can pay $58 per month for 39 months. If you calculate the total you will get $2,262, which includes some fees and taxes, but no interest rate. The choice is yours.
Most deals at Walmart do come with 10-30% interest rate and that poses a dilemma: should you or shouldn’t you? Whichever way you look at it, you will end up paying more at the end. You can choose to repay in 3, 6, or 12 months, but there will be interest whichever way you go.
Walmart has its Layaway holiday program too, which can be a good option if you are sure you can finish all payments without stopping and losing an item and 20% or so. And then there is also new Walmart Capital One Rewards MasterCard with 5% cash back on purchases.
Monthly payment plan at Walmart applies only to items between $150 and $2,000, excluding guns, alcohol, groceries, and pharmacy. Walmart also displays the deal in dollars, not hard-to-understand percentage rates, so people know what they sign up for.
If you are interested in such deal with Affirm, you can apply at the register by providing your name, email, phone number, date of birth, and last 4 social security numbers for a quick look at your eligibility. You can do the same online. Affirm then looks at your credit score and beyond it to determine if you can afford to pay, and all that happens instantly, so you don’t have to wait.
This is kind of like a small revolution in credit card system. It’s fast and gives payment alternatives for people who need them. Shoppers don’t only pre-qualify for financing, but can also create virtual card for shopping anywhere online or at physical places that accept Google Pay or Apple Pay.
Affirm was founded by Max Levchin, a co-founder of PayPal and its former chief technology officer. Most of Affirm’s customers are millennials and Gen Z so far, but other generations are taking interest as 2020 is approaching. Today’s instant gratification desire is the perfect climate for such pay-as-you-go options as we all want something we see that same minute and not a second later.