I mean cmon, you’re literally delaying payment for a long time. How does that benefit any business?
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They charge interest on the payments and they know a portion of them won’t keep up with the payments and the company can repossess the object, keep your money and resell the same object to someone else who potentially won’t be able to keep up with the payments and will get repoed as well.
Lets say I have a showroom full of merchandise
To get new merchandise in I need to move the old merch first
If I reduce the asking price, I lose profit
but If I let you take it home and make payments….
I can count those goods as sold,
and can get new fresh merch in its place in my showroom.
As long as you make more payments than my costs, Im ahead
Because they are guaranteed to get the payment anyways, and if you don’t pay they will get even more
Even without interest, they benefit from a sale that otherwise probably wouldn’t have happened. Even if it’s delayed, that’s not really a problem. It’s still profit that would not have been made (sometimes) otherwise.
If you charge no interest, functionally it’s no different than putting your products on sale: you will make less money (because of delay/inflation/default) but have more sales.
With interest, it’s just moving more things earlier, at the risk of buyer default, but those probably cancel out if you do your projections right.
It makes people think they’re getting a deal and buy more than they usually would otherwise.
Then if you have to end up paying interest, they’re making even more money for free.
Nobody is mentioning but usually there is a financing company involved who pays the business an amount the business is comfortable receiving, usually less than the “sticker price” and they get the upside.
Example – if the thing has sticker price of $100, the business says “our cost is $30, we’ll
Be happy to get paid $90, financing company essentially makes a loan where the customer/buyer is the “borrower” who has to pay back the price + interest at a super high rate (so $100+,) but only pays $90 to the store so they get even more upside.
I’m assuming you are talking about online financing companies like Klarna. I’ve only used that one, and I think I know how their business model works but I could be wrong, correct me if so.
Simplified: Customer enters shop with GigaChad friend, Customer sees a shiny watch for 200$ [more simple of a number] but doesn’t have all the money for it, but GigaChad does. So GigaChad says “Heya man I’ll buy the watch up front for ya, just pay me 50$ every two weeks on this day til it’s paid off, no interest.” That’s basically how a lot of these small scale financing companies work to my understanding, they are basically buying the item for you, then you pay them back.
I got my RTX 2060 this way so I’ll use that as an example; I was shopping for MSRP or close GPUs on the used market. I look on Amazon cause gems can still be found used there too. I find it, ahoy and all that jazz. 348$ is the total cost of the GPU. So on Klarna, I make a ‘one time card’ [which tells Klarna how much you will owe them if the entire card is used.] for 348$, not a dollar more not a dollar less. Klarna then pays the entire cost of my GPU, so it starts shipping just the same as normally buying it. Instead of getting charged 348$ that day I was only charged 94$ the next day, then charged 94$ two weeks from that day. You make four payments and boom, paid off.
The primary reason they are blowing up is it allows broke people [like myself] to stretch out expensive payments with no interest which is often far more comfortable to do and less stressful than dropping hundreds of dollars in one day.
Edit: I was only providing info about how one of those systems work. I don’t know if OP means the actual store, for example BestBuy themselves is doing a get now pay later sort of system or a business where that’s what they do, like the one I discussed. [If so they charge interest, that’s how they make money, more than the price of the item.] as they didn’t specify really. Downvotes don’t correct me.
Depends on the situation…businesses that offer third party payment options with companies like Affirm or Klarna will be paid immediately up front for the goods being sold by the third party. The third party then assumes the risk of collecting payments and interest. The initial business may give a kick back or a discount to the company offering interest free payments so that it is at least marginally profitable for the payments company. They process enough payments on a regular basis that they are able to make a profit.
Businesses that have in house financing – like a Best Buy or Home Depot credit card have actually separated that part of the business off as a second entity, so that their books are different and they operate is a very similar fashion to the examples above.
if you use it wisely it’s great.
Example is I bought a new watch that was $150 off but my pay day was 2 weeks away and I didn’t have enough cash
I used afterpay to purchase it and didn’t have to make a payment until my pay day
I was going to get it anyway when I got paid, but I was able to get it earlier and get a good deal
A lot of people don’t use it wisely and will purchase crap they don’t need or can’t afford
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