I'm beginning to think that consumer debt simply shouldn't exist. If you don't have money to buy something, don't buy it. If you don't have money for necessities (food/housing/healthcare), putting you into debt isn't the right answer anyway. A safety net is the right answer.
Burrito Now, Pay Later
31–40 of 364 posts
Re: Burrito Now, Pay Later
#32> If you think the price of oil will be $120 after a year, you can use futures or options on futures to make this bet. If you think the S&P 500 will be over 6,500 within 2 years and the yield on 10Y Treasury bonds will be 4.25%, investment bankers will help you express this view for a fee. I’m sorry but I think the either the author or I have entirely lost the plot. Finance is a game we play to make humans better off…
Trading one thing for another is expressing your view that the latter is more valuable than the former.
Re: Burrito Now, Pay Later
#33Earlier quoted context omitted.
Alice missed the $25 payment because her balance was zero, triggering a $7 late payment fee, $30 failed payment fee and $30 overdraft protection fee. Alice used the service more than once, so she missed not just this payment, but 20 simultaneous payments, having $1340 taken from her in total, eating her whole next two paychecks. During the time of those next two paychecks, it will be time to pay the next two instalme…
Is this really how this works? Do you have a source? Also… in this situation does klarna get any of that 1340 or does Alice just delete the app?
This is a bit of an exaggeration, but otherwise correct...
Alice has $100 in burrito debt at 0%, but misses one payment, which automatically reverts to a 30% interest rate, back-tracked to the start of the "loan".
She also receives a $7 late payment fee, which is equivalent to about 90% interest for the time covered.
Her bank will often re-order operations on a given day in order to maximize the fees charge (yes, this happens, yes, this is legal), so even if she had her paycheck arriving on the same, the operations will often be sequenced with largest debits first, followed by credits, so that the overdraft hits as early as possible, and the most possible number of failed payment fees can be extracted, followed by the credit, which is now greatly reduced
(I actually had this happen to me as a student once, five late payment fees because of re-ordering, which caused me to both never let this happen again, and change banks immediately for one which wasn't as predatory).
Burrito loans are like payday loans, but even more predatory... They are neither ethical, nor moral (usury is even covered in the old testament, for christian folk).
Re: Burrito Now, Pay Later
#34This is blatantly just increasing debt load. What does a business do if they need forever growth, but can’t increase their prices further without losing net revenue? Raise prices anyway and push people to finance it.
This is broadly not good for people. Financing things like your food or your rent (seriously - that’s a thing here) doesn’t help if they’re recurring. It’s not like people are gonna need to just finance one month’s rent payment and then they’re solvent and paying off the next 4 months normally plus installments. Really, what could structurally change in someone’s personal finances over a 6-8 week term? If you couldn’t afford a burrito or rent this week, what possible belief is there that next month you can afford that plus debt service.
The loans are just gonna stack and stack. Which will drive people into more debt, and more need for continued financing. This isn’t a multi billion dollar business because people just need a temporary boost once every year or two because their paycheck timing is off. It’s a flywheel money extraction machine.
Securitizing these debts doesn’t make them a good idea for the consumers. It makes it good for the industry so it can scale it up larger. Which means more people in more debt more of the time with “investors” extracting wealth from it.
Plus then there’s the whole systemic risk of people not paying back. They bake into the rates some percentage of defaults, and the larger the pool size the safer that gets. This systemically is a bet that no more than X% of loans will default at once. Basically shorting loan defaults.
Which is cute and all until any economic situation hits where a bunch more people suddenly can’t pay at the same time. In which case the whole thing unwinds brutally. And given that the play is to literally sell financial products that increase pressure on people’s ability to pay… this is probably super unwise. Combine that with any of the major structural economic issues we have ongoing and you’re poking a sleeping pressure cooker.
The only real questions are how much can be extracted before it explodes, and who is the ultimate bag holder at the end?
“If you thought 2008 was fun, well hold my beer…” - finance, probably
Re: Burrito Now, Pay Later
#35I'm beginning to think that consumer debt simply shouldn't exist. If you don't have money to buy something, don't buy it. If you don't have money for necessities (food/housing/healthcare), putting you into debt isn't the right answer anyway. A safety net is the right answer.
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Re: Burrito Now, Pay Later
#36This treatise, from someone obviously in the industry, is merely another payday loan shark attempting to justify the existence of their clearly predatory products. How many of the consumers of this product are even remotely able to comprehend the piece as-is described? The article describes a "complete market". Yes, a market that is completely able to extract as much money from an exploited, uneducated populace as po…
It's unhinged.
> Is financing your lunch a sign of societal decay? Maybe, maybe not.
Financing your lunch means you can't pay for your lunch. And then somebody comes to search profit in that. Yep, it's societal decay.
Ah, but he draws the line at sports bets, he doesn't like that.
Re: Burrito Now, Pay Later
#37This treatise, from someone obviously in the industry, is merely another payday loan shark attempting to justify the existence of their clearly predatory products. How many of the consumers of this product are even remotely able to comprehend the piece as-is described? The article describes a "complete market". Yes, a market that is completely able to extract as much money from an exploited, uneducated populace as po…
Amen. It's been my experience that, for any innovation in financial technology, if you keep asking "and why is that beneficial?" for long enough, you will finally arrive (via tangents into "liquidity" and suchlike) at "it allows those with money to extract more money from those with less money".
Re: Burrito Now, Pay Later
#38I'm beginning to think that consumer debt simply shouldn't exist. If you don't have money to buy something, don't buy it. If you don't have money for necessities (food/housing/healthcare), putting you into debt isn't the right answer anyway. A safety net is the right answer.
I agree, with exception of housing. Most people can't buy home with cash, and for many this is a necessity. But homes are an appreciating asset, which cannot be said about cars or food - this is an investment, actually. But for everything else - cars, phones, electronics, food, subscriptions, jewelry - I 100% agree. Consider two people:
* One person has $10k saved, invested into something safe and liquid. Then buys something for $10k, earns and invests that $10k back, and because of investing is a bit up (let's say now they own $10.3k)
* The other person borrows $10k, and repays $11k over time.
This buy-and-earn cycle will repeat, and each time the person that fronted $10k is $1.3k up (and due to interest, this is only growing with time). The difference quickly becomes staggering. Tragic, and a classic rich-get-richer situation. And the only difference is the starting $10k and some discipline.
Re: Burrito Now, Pay Later
#39I have a background in options trading and fixed income markets, basically the kind of professional education one gets while participating in the "financialization of everything". I'm not sure it's great. It's definitely useful for people to be able to unbundle risks. Or rather, it's useful to someone who knows what they are doing. Something like what's described in the article, for instance, where there's a mutual b…
While I agree with your sentiment of the "old world", I'm not sure that I can entirely agree with your views here.
What I do notice and do agree on is the fact that our society has become too financialized, there are too many people working in the financial sector that spend their days studying and trading financial products that oftentimes stem from debt.
But I also can't imagine our society without debt, how will we give the chance for people to attempt to create enterprises and businesses without it? Where would you draw the middle ground here?
Re: Burrito Now, Pay Later
#40I really wish I could downvote it, but then I again I would prefer people see it, get appalled and decide that BNPL is even worse than they previously thought. Is there a "begrudgingly upvote" option?
same here, it’s one of the few times I wish I could downvote an “article” on HN