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FICO to incorporate buy-now-pay-later loans into credit scores

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Re: FICO to incorporate buy-now-pay-later loans into credit scores

#401

Post by maerF0x0 »

ta1243 wrote: post #239
eadmund wrote: post #125

Earlier quoted context omitted.

A mortgage doesn’t make money, but it (can) enable spending less money. If you buy a place such that interest, maintenance, insurance, taxes and the opportunity cost of not being able to easily relocate are less than rent, then you have saved the difference. It’s also a way to force saving, which is psychologically useful (and thus valuable).

If you buy a house for 500k on a 5% mortgage over 25 years when you are 25, and you plan to live until you are 85, you will live there for 60 years. It will cost you 35k a year for 25 years, or 875k a year After 25 years you have no more expenses. If instead you rent it for 20k a year, increasing with 2% inflation each year, by year 25 you're paying 33k a year in rent, and by year 60 you're paying 66k a year. Over 60…

> people won't rent places out if they aren't covering their mortgage

btw this is usually false, and mostly irrational.

1. Realize that every landlord has a different capitalization structure. Many likely bought decades ago and thus only owe a fraction of what the current market selling price is. Additionally we also have had a long period of ultra low interest rates so their interest rate is different than what new entrants are paying. Because their capital cost is lower they can actually offer for far less than the (Interest+Taxes+Insurance+Maintenance) costs that a home owner would have to bear.

2. The rational move of a landlord is to price competitively based on what the market can bear, even possibly losing a little money per month in cashflow (but less bad than the appreciation rate and cost of disposal/selling/defaulting).

Re: FICO to incorporate buy-now-pay-later loans into credit scores

#402

Post by FireBeyond »

avianlyric wrote: post #116
john01dav wrote: post #98

Earlier quoted context omitted.

You can buy investment properties to convert debt to income and get nice returns. While this is technically a business, there are ways to make it quite passive and thus more like an investment than a business. Margin stock accounts also exist, although I don't know enough to know what situations it makes sense to use them in.

This has the rather tone deaf sound of “if you just had financial security, you wouldn’t need to use loans to survive, then you could use them to invest!”. Which rather misses the point that many people using these tools don’t have financial security, and don’t have the option to invest like that. Saying that mortgages can be used to buy investment properties doesn’t change the fact that most people use them to provi…

> I.e. a literal roof over their head, that they can’t be taken away with little notice by their landlord for reasons completely beyond their control.

Yeah. Before I bought my home four years ago, three of the last four landlords I'd had had promised long term stability, only to non-renew the lease after the first year (for "other" reasons: "Wife thought she'd like the country, we're moving back to the city", "We want a smaller mortgage payment on our primary home", We're going to renovate and sell"). It's a lot of fun moving a family every year. Especially when around here you also have to come up with first, last, security and other fees and can easily be looking at $10K+ just to move.

Re: FICO to incorporate buy-now-pay-later loans into credit scores

#403

Post by lxgr »

JKCalhoun wrote: post #280
jltsiren wrote: post #130

Earlier quoted context omitted.

Often, houses are depreciating assets that are expensive to maintain, but people take mortgage and buy them anyway. Often, renting is cheaper than buying, but people buy anyway, because they like the idea of owning their home. Often, people buy a home, because suitable homes are not available to rent. Money is only a means to an end. It has no inherent value. And very often, the subjective value of a thing is essenti…

You can believe that if you like of course, but I am definitely not teaching my children that. Renting cheaper than owning sounds like a very short-term view. My dad explained to me the nice thing about a 30 year fixed mortgage in simple terms: 10, 20, up to 30 years later ... your "rent" is the same. It's a simple experiment to see what a person's rent was going for 30 years ago in your community and then see what a…

> Renting cheaper than owning sounds like a very short-term view.

That highly depends on where you live. In some countries/cities, buying really makes no sense both short and long term. In others, it absolutely might.

Re: FICO to incorporate buy-now-pay-later loans into credit scores

#404

Post by maerF0x0 »

ta1243 wrote: post #301
greedo wrote: post #289

Earlier quoted context omitted.

No more expenses... Right! No property tax. No homeowner's insurance. No maintenance. Just living on easy street.

It seems unlikely you'd be able to rent somewhere for less than the cost of * maintenence * taxes * return on capital Because otherwise your landlord is subsidising you, and why would they do that?

> Because otherwise your landlord is subsidising you, and why would they do that?

Because they may have capitalized decades ago and the market only bears a certain price. They're not subsidizing you because their cashflow needs are actually lower than new entrants.

Re: FICO to incorporate buy-now-pay-later loans into credit scores

#405

Post by olyjohn »

hansvm wrote: post #278
devmor wrote: post #255

Earlier quoted context omitted.

Or you end up with the opposite end of the problem. I grew up in destitute poverty and was told all my childhood that credit was an evil trap - I should absolutely never use it. Well, spring forward to me starting a pretty good career as a software developer and wanting to get my first reliable car. I had no credit history and ended up with a 19% APR. That really, really sucked. It's been 10 years since then and I st…

Why'd that suck so much? As a software dev couldn't you just pay it off a month or two later?

That would depend on what car they bought.

Re: FICO to incorporate buy-now-pay-later loans into credit scores

#406

Post by jabroni_salad »

Tadpole9181 wrote: post #71
janalsncm wrote: post #52

What is the functional difference between BNPL and credit cards that can explain why it’s become popular? A credit card is literally “buy now pay later” so is it just the ease of onboarding?

BNPL is 0% interest over N months. A credit card is 20% APY over the total balance over minimum payment. And it's offered by my CC providers. For some larger purchases on a 12 month plan, leaving the money in savings loses me 1.5% cash back but gains me around 3% interest (after accounting for the depleting principle). It would be stupid not to do it sometimes. I don't really get the financer's benefit. Though maybe…

The merchant pays a fee for it, and they do it to get a sale that they otherwise would have missed.

If you decide to save $25/mo for a $100 product, that is 4 months for you to change your mind, have an emergency suck up that money, or score a lower price by waiting for a sale. But for some segment of the population, they will close on a pay-in-4 right now instead of waiting, and that is guaranteed money.

Re: FICO to incorporate buy-now-pay-later loans into credit scores

#407

Post by Ancapistani »

dh2022 wrote: post #33
UltraSane wrote: post #23

Earlier quoted context omitted.

If customers make every payment their score should improve.

What is the benefit for a consumer to use this type of loan and then pay it back on time versus using a credit card and then paying the card back on time? To me this seems like a new product that would target a different consumer than the one that makes payments on time. But I would like if someone challenges this view. Thanks!

Structuring.

I’ve used them several times, mostly because they are relatively cheap forms of credit for short durations (Last summer our A/C went out. It ended up being about $4.5k to replace, and it was a heat emergency at the time. So I put the whole thing on Affirm for three months, at 0% interest. I paid about $50 in fees. That got us through the immediate emergency and gave me time to shop around for a better way to fund it.

I ended up taking out an auto loan with my credit union. The rates were much cheaper than a personal/unsecured loan, and I have three vehicles in the driveway without liens. The loan was for four years, but I’ve already paid it off.

In a tighter situation, BNPL not impacting your credit utilization rates is a big benefit.

Re: FICO to incorporate buy-now-pay-later loans into credit scores

#408

Post by lxgr »

crazygringo wrote: post #32
PostOnce wrote: post #13

Theoretically, credit should be used for one thing: to make more money. (not less) However, instead of using it to buy or construct a machine to triple what you can produce in an hour, the average person is using it to delay having to work that hour at all, in exchange for having to work an hour and six minutes sometime later. At some point, you run out of hours available and the house of cards collapses. i.e., credi…

> Theoretically, credit should be used for one thing: to make more money. I disagree. You use credit to buy a car or buy a house when you don't have the cash to buy them up-front. It's not so you can use them to make money, it's so you can use them to enjoy life . > At some point, you run out of hours available and the house of cards collapses. Only if you go too far. The point is to buy things knowing what they'll c…

> > Theoretically, credit should be used for one thing: to make more money.

> I disagree.

> You use credit to buy a car or buy a house when you don't have the cash to buy them up-front.

There's no contradiction with GP here.

Financing a car or buying a house on mortgage might well save somebody money in the long term (e.g. by allowing them to take on a job to which they have to commute by car, or saving on future rent payments).

If that's the case (and that highly depends on individual circumstances), this still counts as "making more money" – via spending less money.

The real question is: How do you feel about borrowing money used to buy depreciating assets or consumables?

Re: FICO to incorporate buy-now-pay-later loans into credit scores

#409

Post by DrillShopper »

JKCalhoun wrote: post #285
DrillShopper wrote: post #244

Earlier quoted context omitted.

> My son is looking for rentals in our same community and the equivalent rental to what I had is now around $3000. Good for you. Bad for your son or anyone living in your community.

Agree. I wonder though if the tone of your comment doesn't come across as casting blame on the person who got the mortgage years ago.

It's not intended to, although it is intended to be blunt.

Re: FICO to incorporate buy-now-pay-later loans into credit scores

#410

Post by acuozzo »

9rx wrote: post #377
smelendez wrote: post #343

Earlier quoted context omitted.

Most American urban areas are dominated by suburbs where it’s not practical to walk everywhere and public transit is very limited. So a car is necessary and often a car per working adult.

Yes, but why would anyone want to live on what is effectively a farm, but without the benefit of separation from other people or land (read: income) that a farm offers? That completely defies the whole reason for the density. I'm not saying it doesn't exist, I question why people are doing it.

FWIW, I grew up in Brooklyn, NY. I know about both urban and suburban living. I now live in Columbia, MD: a suburb from the late '60s planned with high ideals.

My three children each have their own room. They can ride their bicycles on our sleepy street without having to constantly worry about reckless drivers. They can explore the walking trails and wooded areas our community maintains. They can play baseball in one of the nearby fields without having to worry about breaking a car window in doing so.

My wife has a large crafting area. I have an office. We have a home theater. We have a workshop in our garage. We have a large sunroom which opens to a large deck suitable for entertaining many friends at once.

Getting even a fraction of what I described above in a city would cost a fortune.

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