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Comment by yladiz | Hacker News Reader

I think this is a bit too simplistic of a way to look at it. Having sone debt is not necessarily bad, even outside of enormous purchases such as a house or car.

First, c'mon, people don't (directly) finance sandwiches. Have you ever seen a sandwich shop accept Klarna? If you're talking about a credit card that's something but that's not what this article is talking about, which is BNPL.

Second, in general it's not as black and white as either having or not having the money right now. If you have enough regular income to afford something over time and the interest rate is low/0%, it may make sense to spread the payments out over time rather than all at once. For example if you wanted to buy a €5K camera and maybe you don't have the money all at once but can afford to make 12 payments, what's inherently wrong about doing so?

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If you can afford 12 payments with interest, you can by definition also afford to save for 12 months and then buy the camera. BNPL and credit card companies are masters of exploiting psychology and especially currently prevailing wusiness and entitlement ("But I want it now!!!1!", "I deserve to treat myself like a king").

Okay, I repeat my question above: if you can afford to pay over 12 months (meaning, you don't go into debt to do so), what's inherently wrong with doing it instead of waiting 12 months and paying all at once, besides ideological reasons?

I think the argument is that its easy to get out of control and leave yourself exposed.

If you have discipline then I don't see any problems. I might behov the industry to be forced to do more stringent credit checks before allowing it either by law or regulation.

I have no sympathy for adults (important distinction!) who have no discipline with their finances. They aren't children who literally don't know better.

Those who do have financial discipline should not be inhibited for the sake of those who do not.

Besides, /most/ cases of financial ruin aren't literal death. They are generally just very expensive and horrible-to-go-through life lessons.

Sure but regulations are the to avoid them creating systemic risk by lending to dead beats.

It’s financially reckless. What if you lose your job?

You then pay off your outstanding debts if you think there is risk you will be paying out more in the near term... That's why you only carry debt when you could otherwise afford something. Literally thats the point. Realistically though its even better if you lose your job because you have the cash in the bank you would otherwise have sunk into an asset. I just quit my job to be self-employed and have a bit of a career break. Before I did I got a 24 month interest free credit card. If I suddenly have to pay for something really expensive like a new boiler or something, I can put it on there and I have two years to decide what to do, or get a job with zero additional cost. That's security more than it is a liability. I've had a perfect credit score and never paid for credit other than my mortgage interest. People who refuse to use credit out of some broken parental advice of "never carry debt" is far more reckless since you're ignoring an entire avenue of financial management for yourself. Absolutely don't carry debts you cannot afford. But everyone should abuse the fuck out of the credit system, and the institutions designed around fleecing people a lot stupider than you. The bar for credit company profits is set at people where money is like water through their hands, not people who know how to keep a personal budget in a spreadsheet.

You can’t pay it off if you weren’t able to afford it up front. You’ve changed the scenario from “I can’t afford the full cost but can afford monthly payments” to “I can afford this and am using monthly payments as an interest free loan”.

Go read what I said, the premise was you can afford the item outright but it still doesn't make sense to if you have interest free credit available.

Ideally you have an emergency fund so it doesn't matter. But compared to paying the cost up front I think you'd be better of using BNPL actually. You'll have more cash on hand to pay for necessities like food/rent, in exchange for a ding to your credit score if you don't have enough money left over to pay the monthly payments on the camera you use for your budding photography business

If you take 12 payments you, by definition, are in debt! It seems you are conflating debt with net worth - a person can have positive net worth and still have debt(s). Even if it is 0% interest you owe money to someone. Every debt is a risk. It may be smaller or larger, but it's a risk. It also normalises the behaviour of going into debt for buying depreciating objects which is bad by itself.

There is nothing inherently wrong with that but it's a lot more risky then saving up.

Say after 10 months an unavoidable bill of $4k shows up and I got to pay it. If I'm saving up I can redirect that money. It sucks that I don't get the camera when I planned to but otherwise I'm fine.

Under a BNPL plan I have no extra money to allocate and might have to dip into Credit (potentially with high interest).

In short: Savings are fungible, payments are not.

Studies show that huge percentage of the population doesn't have any savings. For them it's particularly dangerous to have more recurring bills.

Your method is just as risky - say after you've just spent 5K on your camera an unavoidable bill of $4K shows up? Now you have no extra money and have to dip into Credit (potentially with high interest). Your best strategy would have been to have $5K on hand and still use financing if the terms are favorable - it keeps your funds at steady level, allows for future planning and gives you opportunities to invest or otherwise grow your capital. And yes, people without savings pay for that, it sucks to be such people but they are paying regardless if you take advantage of the financing scheme.

Then you sell the camera and pay off the bill. Sheesh - it's a camera, not a life support machine...

I think you might be overestimating the liquidity of the used camera market a little bit.

Does it matter? Even if he only gets half the price back, that leaves 1500 left of the debt he has to pay out of pocket. If he's paying monthly for the camera, he suddenly has a $4000 bill on top of whatever of the $5000 debt remains unpaid. I think I'd rather be in the former situation.

Even if not having any debt is extremely important to you then you are still out of 2500 on your camera transaction, which is pure loss here. However some people consider not just an amount of debt but its other qualities too and for them having debt of $5000 with 0% APR might be preferable to having $1500 debt with, say, 20%+ APR. At the end you need to count a monetary balance and compare a ($2500) loss on camera together with the interest paid on your $1500 loan against paying $5000 for the camera.

If math is hard consider your end state:

1. Without the camera, without $5000 + interest on the $1500 you borrowed.

2. With a $5000 camera, without $5000 you paid for the camera.

The state of the $4000 bill is the same in both cases, which state you prefer?

> If math is hard

Get fucked, mate.

> There is nothing inherently wrong with that but it's a lot more risky then saving up.

Cash is king. Assuming 0% interest, it's financially better and less risky to do BNPL. This is separate from all the other financial decisions like savings, etc...

It's similar with CCs. I love my CCs and get a ton of value and free stuff by using them. I also have never carried a CC balance in 20+ years. Someone who is financially disciplined is leaving money on the table when not using CCs.

>Someone who is financially disciplined is leaving money on the table when not using CCs.

The trick is knowing whether or not you're financially disciplined. And usually one finds out the hard way. It often involves a credit card or credit facility of some nature.

This here. Not everyone can do that. I personally can. I try to teach my friends and family to save a bit and use credit cards as a tool to get a small bit of free stuff. However, those things are deadly if you have no skill in saving in the first place. They will wipe you out with interest payments and then some. That method only works if you have the ability to save first and put off impulse buys. Even having something simple like a checking account can be bad if you have poor ability to balance your budget.

My wife for example does not have this ability, however I can manage it by basically controlling the amounts we have and putting restrictions on how money is spent that teach the lessons of saving that her parents for some unknown reason skipped teaching her. Lessons like 'you have X amount of cash lets save up for that thing you want' 'lets review our purchases and see if they make sense on the amount of income we have' 'yes, your friend has a need of 100 bucks and we can cover it but will giving them 100 just make them ask next time for 1000 and will it actually fix their problem or delay it?'

I think the ability to manage money well and not get screwed over by credit facilities is highly correlated with ones level of trait conscientiousness. It's less about skills per se than it is about that particular trait. I would wager those high in trait conscientiousness naturally tend towards frugality and budgeting and those low in trait conscientiousness tend towards impulse buys and poor financial planning.

My wife is 99th percentile for trait conscientiousness and I'm 1st percentile. I'm amazed at the amount of money she's able to save and her level of discipline and she's generally gobsmacked at the amount of money I waste and the random shit I buy.

Having the information about what one should or shouldn't do is only part of the equation. 8t also needs to be something you can apply, and sadly some of us just can't.

Why punish normies who have the same discipline with more expensive stuff?

Always spend other people’s money, especially at 0%. The trap is it creates a mental pattern to condition you to accept paying interest on other purchases.

Well said, but I feel like practicing your first sentence makes it relatively easy to be good at avoiding the mental trap you describe.

Paying in installments requires you to have a secure stable income.

You may not have one tomorrow.

You may lose your job.

You may go through a divorce.

Maybe you have to move for months because your house has been flooded.

You don't know what your tomorrow's financials look like.

The only time that it may makes sense to pay installments if if the interests are really 0% and you have lots saved anyway. At that point..why not improve one's credit score anyway.

> The only time that it may makes sense to pay installments if if the interests are really 0% and you have lots saved anyway. At that point..why not improve one's credit score anyway.

BNPL providers typically provide 0% interest rates for longer that credit cards, which have 0% interest for anywhere from 3wks to 7wks (depending on when your statement closes relative to when the transaction settles).

if you can get a loan at 0% interest it's definitely in your best interest to pay that loan back as slowly as possible. The longer you wait the less you effectively owe as inflation does its thing. I'm 46 and still paying on my student loan, the interest rate is so low that (even in normal times) inflation outpaces it. I'm making money by paying it back over decades.

while I agree I can also see cases where you need things not later, but now but you'll have the money later not now. e.g. moving to a remote village where you really need a car or buying that compute for data processing or rendering you need for your freelance work

Yes, "need" is different thing. OP specifically wrote "want". Of course if it's a matter of life or death I would take credit.

The tricky thing is factoring death into the equation. At some point, given that we all might die on any given day, delaying gratification to save a small amount of interest isn't worth the risk. But of course that's hard to calculate.

Also, if you wait to buy something then you have less time to enjoy it, so it is theoretically worth a bit less to you.

If there's 0% interest, you might be better off buying the camera now rather than in 12 months when the price has increased.

Fair, that could happen. It could also happen that the price decreases, as prices for electronics tend to do.

You also get to pay off a real-world lower amount due to inflation. However for many (most? myself included) the reality is that easy credit like this does lead to over extending in the longer term.

Or you can afford the camera outright, right now. What's better out of these options:

1) Buy for cash the camera now. You don't have any cash in hand afterwards, and the camera is depreciating in value immediately as an asset only offset by whatever you do with it.

2) Buy via BNPL with no interest for 12 months, and pay exactly a 12th a month. You have the camera, but you also have 91% of your cash in the bank that /does/ get interest or can be used for anything else like investing in shares. You still have liquidity and can assumedly use the camera to generate some cash doing weddings or whatever as part of your hobby for one year.

3) Save cash where you are getting similar rates of interest as 2 for 12 months once you've identified you need something. Buy the camera a year after you needed it, you have lost the opportunity of 12 months revenue from maybe one wedding a month? The price is either affected by inflation after a year, or more hopefully its gone down due to competition with other models, but who knows. Also do you still need a camera? you've certainly lost out on a years experience to know if it was worth it.

BNPL makes plenty of sense if you can or cant afford something, more so if you can.

If we are to make up scenarios, I can take $5,000, go to a casino, observe roulette wheel and bet on black when I notice bias. Bam, I now have $10,000! I am the smartest guy ever!

Seriously, OP never mentioned investing in a business equipment but wanting a camera. Also, that camera will depreciate no matter how you paid for it, but you conveniently mentioned it only in the scenario 1.

Because I assumed you'd understand the depreciation of the asset is a lot less than the appreciation on your investments or cash that you can do in the other scenarios. The entire point is its offset. Also that's not a business asset description, thats just normal life??? WTF buys a camera and doesn't offset some of the cost doing their mates wedding? You're not thinking rationally if you think using the credit system is comparable to a roulette wheel. You control its use. You can just clear the debt if its interest free, its not grown or changed. The credit system is designed around returns for people who can't afford something at all. It's utterly predatory, but if you financially are entirely above the risk of paying interest its just a lot of flexibility in preserving your cash capital.

Moral aside of shooting mates' wedding and charging for it(!), but as soon as you use equipment to earn it's a business/side gig. You may not like it but I'm sure tax authorities of any sane country will disagree with you.

For the rest I actually agree with you and think credit system is predatory and that if one can, one should take advantage of it. Just that buying something on credit because want, and using that something to earn money are two fundamentally different cases.

Why is it a problem if it’s a business or side gig? In the UK at least that just means that you need to report the income on your tax return if it’s above a certain amount. It’s not difficult. I’m not sure I’d describe countries that make you do more than this as ‘sane’.

Dude what world (or country) do you live in? Im in the UK and everyone has a £1k self employment allowance, that gets you quite a nice camera! Filling out the return is trivial.

I disagree, it's death by a thousand paper-cuts.

Having my funds reduced to 91% the rest of the year is waaay worse for me, than having it reduced to ~0% the rest of the month. Because, the rest of that month, I'll be super-vigilant, I'll be acutely aware of why I have less money than normally, I know not to make anymore purchases, I know that this month is not for an extra treat, because I bought the other thing. Next month I'll be back up to 100% capacity.

This affects my model of my financial situation, because, it's a camera then.. ~91%, it's a new toaster there ~86% and then ~40% and ~20% and now I get into the dangerous "poor" mindset, it's well proven (and I can personally attest to this being a very real effect) that having less money makes it harder to be financially vigilant, there's opportunity cost* for once, but there's also a tendency to "treat" oneself more because things feel tight, there's a tendency to short-sighted savings (the more expensive pr roll toilet paper, versus the cheaper bulk option that has higher up-front cost for instance).

Now, to begin with, I'd go into "savings" mode a month before buying something expensive, so that I'm not at ~0% for a month, I'd never do that.

* Sure, there could be 100% opportunity cost right after paying in full for something, but the recovery to full capacity is also quicker. I really prefer the large, immediate consequences over the smoothed-out slow-squeeze.

So the weakness is your psychology not the business model.

This looks like a weakness in managing your personal balance sheet. You're willingly sacrificing cash flow and interest to simply balance sheet management, which may be worth the tradeoff for some but for those of us with the required skills it's really not.

There are better ways to spend life than optimizing cash flow.

Cash flow optimization is a useful skill but it’s on the fringes for sure as BNPL main revenue is from their interest.

Any amount of debt creates a degree of moral liability. The more that your possessions become contingent on the continuation of your cashflow, the less you are able to push back against things that you know are morally wrong. Do you think you would be strong enough to tell your boss "no" if it could mean losing all of your valued possessions?

So I take a 10k loan out for 10 years for solar panels on my roof paying 12k in total, reducing my electric payments by 1500 a year.

You think it's better to not. OK.

Correct, you can always save indefinitely to get the required amount of money and pay for whatever all at once.

The problem is that the above is assuming that there is no value to having the thing you want to buy.

For example: a person might be able to save for 12 months to buy a new camera, but that's now 12 months they don't have that camera. Presumably you had reasons for wanting that camera.

While there are a bunch of things I don't think it's ever good to go into debt for, your claim that there's no justification other than "I deserve to treat myself like a king" is BS.

As per usual for articles like this they pose this in context of the extremes "sandwich in payments", which I suspect if people have done that it is accidental and/or "huh? what is this like".

> First, c'mon, people don't (directly) finance sandwiches. Have you ever seen a sandwich shop accept Klarna? If you're talking about a credit card that's something but that's not what this article is talking about, which is BNPL.

In the UK, Deliveroo (a food delivery company) will let you pay by Klarna for orders >= £30, including from sandwich shops. Here's the press release: https://www.klarna.com/international/press/deliveroo-and-kla...

The article also links to https://zip.co/us/store/uber-eats, which is similar in the US.

Klarna does more than just BNPL loans though, they do normal credit too.

Copied and pasted directly from the link I gave:

Deliveroo customers will see Klarna as an additional payment option when they arrive at check-out, where they’ll be able to choose one of three payment options:

    Pay Now, to pay the full amount immediately;  Pay in 30, to pay the full amount within 30 days; and  Pay in 3, to pay in three equal installments, spread over 60 days.

Paypal offers me a pay-later option, apparently no matter how small the amount is or what I'm paying for. Sometimes two options (pay everything next month + pay in instalments). Or perhaps it's alwys two? I haven't really paid attention.

The next-month option is free (for me) anyway. I assumed that the risk of a one-month loan is low for Paypal and worthwhile because it takes a few transactions from the other payment processors usually offered by the same webshop. But that's just an assumption.

Pretty much all the food delivery apps take Klarna now it seems.

Never tried it, I won't touch Klarna with someone else's bargepole, but it is a thing and its fucking silly.

Back in my twenties I bought a car using a 5 year 0% interest loan from the dealer. I had the cash in the bank to buy it if I'd wanted to, but interest rates were around 7% at the time so using the 0% loan effectively gave me a 15% discount because I got to earn the interest on the value of the car instead of the dealer.

Managed debt is fine. It's only an issue if you over-extend yourself or you have a catastrophic change in circumstances (and you can insure your debt against that...)

> First, c'mon, people don't (directly) finance sandwiches. Have you ever seen a sandwich shop accept Klarna?

I put a (vegan) sausage roll from Gregg's on Monzo Flex the other day...

And when you miss a payment, what do they repo?

They repo your ass, and everything you own

They can repo all of these stale sausage rolls but I don't think it'll be worth their time.

Invariably people who use that service plan to spend 100% of their monthly income. Whenever you have an unexpected expense in that 12 month time frame and have to pay for that, then you can't make the payment on that loan.

Yup, debt is purposely setting you up to put you in exactly that bind, and then you owe the serious interest. Kind of a reverse lottery where you lose. It doesn't happen to everyone, but at scale, Life Happens, and a certain percentage of people will get behind and wind up paying huge interest, and there's the profit model.

Also, people are chronically up in arms about taxes, but here, they are signing up for voluntary taxes on everything. At least taxes buy something real, like roads, mostly reliably safe food supply, education, police, fire defense, etc., while interest just buys indulgence today then headaches tomorrow.

Interest is fine if you are creating an asset that create greater future value (e.g., building a business), or where the asset itself is a security (e.g., a house). But for transitory consumption, debt is a losing game. (I'm distinguishing debt from credit cards as a payment convenience paid every month - don't let them slide)

> Invariably...

Hate to throw a variable into it, but I usually spend less than 50% of my income (after savings and retirment), and I still use BNPL and payment plans when I can get interest rates and fees for under 10%.

Food delivery apps in Europe (Deliveroo, Lieferando, etc) take Klarna, which is BNPL. And people use it.

Its absurdly common.

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