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Comment by lotsofpulp | Hacker News Reader

> If anything, many would likely be happy to have layaway at their fingertips for all of their purchases.

A severe indictment of society’s innumeracy.

I wouldn’t use this because it just seems like a hassle but how are 4 interest-free installments worse than paying upfront?

I’m unclear on Zip’s business model so appreciate I could be missing something here.

As I noted in an adjacent comment, there is a $4 flat fee, and it is reasonable to assume the lender has expenses to pay, such as payroll and profit seeking investors, so there must be a cost to using their financing.

Regardless of what the marketing says, nothing is ever “free”. Typically, these types of small time lending operations for retail purchases with no collateral depend on people without impulse control control and poor cash flow management buying things they should not and then collecting a slow drip of money from some portion of them who will not be able to pay it off for a long time.

Not that I think it should be illegal, but it is generally considered to be a bottom feeder business, one that the esteemed people who work at Microsoft might be above. But apparently, they are not, and hence it is on Hacker News as a controversy.

> it is reasonable to assume the lender has expenses to pay, such as payroll and profit seeking investors, so there must be a cost to using their financing.

>Regardless of what the marketing says, nothing is ever “free”

In a world of low-interest rates, plentiful venture capital, and penetration pricing, things are often better than free.

Sometimes, but I do not see how it is possible in this case. That type of thing is done temporarily to gain a monopoly via network effects and then establish pricing power. If you cannot achieve that, then it is giving away money.

I think this absolutely should be illegal. Not the loan itself, but calling it interest-free should be.

Interestingly, I just noticed a Zip Pay option here on a UK retailer's site, and in this case there doesn't appear to be any flat fee involved; the 4 payments add up to exactly the standard retail price of the product. I guess this probably varies depending on local credit-issuing regulations.

(Checking the T&Cs shows that they do have a steep fee for any missed/late payments, in addition to whatever cut they're taking from the merchant. But it looks like here, the few weeks of credit really would be "free" to the customer provided payments are made on time. Not that I'd consider using them; my cashflow isn't so constrained that I need the service -- and if it was, I'd be more concerned about the risk of being late with a payment and getting stung for extra fees.)

I was curious how it compared to a credit card, since if you wanted a 4 payment over 6 week plan you could simply use a credit card and make an immediate payment of 1/4th to your card, and then 3 more payments of that amount over the next 6 weeks.

A quick internet search says that the average US credit card currently has an interest rate of 16%.

Paying off your credit card on the aforementioned schedule at that interest rate, assuming a monthly billing cycle that starts right before your purchase, you'll pay under $4 in interest if the purchase was under $487. If the purchase is over that, Zip is cheaper.

If your purchase comes in the middle of a billing cycle, the breakeven is $811.

(Both of those are assuming that you have nothing else on that card, so that the billing cycle in which you pay off the 4th payment will end with a 0 balance, and so there will be no interest for that cycle).

(Also I'm assuming you aren't using a rewards card. I'm using a card with 5% cash back on online purchases, making it quite a bit harder for Zip to beat the card).

As well as the $4 fee mentioned, Zip and co also charge the merchant - in my country, 30 cents per transaction and 4-6% commission. Late payment interest is probably just gravy.

With schemes like these, all customers ultimately end up paying for this regardless if you use the service or not as merchants will have to add the costs to their prices.

How is that so?

Nobody lends money for free:

https://techcommunity.microsoft.com/t5/articles/introducing-...

> shoppers break their purchases into equal installment payments, often interest-free, which can allow shoppers to get their purchase upfront, instead of having to wait until it’s paid in full.

From the commenter JennaScout on the same page:

> Looks like you neglected to mention the $4 flat fee in the article?

>On a $35 purchase, that's 11% of the purchase cost spread over one month. Annualized, that's an astounding 250% APY. Even the most predatory credit cards top out at around 40% APY.

>All you've done is just baked predatory loans into your browser. Honestly, you should be ashamed.

>Nobody lends money for free:

Sure they do. Get a credit card with 0% interest on purchases and pay the balance before the interest free offer period expires. In many cases these cards to not charge any fee associated with the purchase.

I understand that the credit card company will still make a profit in many cases – even when they don't manage to collect any interest or fees. But the loan is free from the cardholder's point of view.

It's the rational choice with inflation on the horizon, isn't it?

Edit: No interest, but a flat fee, so possibly not worth it.

Depends what the interest rate is. In my 25 adult years of living in the US, I have seen no “buy now, pay later” scheme for small purchases with no collateral that results in the costs for the financing being less than the gains from investing.

The only one that works is the 2%+ credit card rewards, and that is because people who are not paying with credit cards that earn rewards subsidize those who do because merchants do not offer a lower price for the non rewards payment methods.

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