Don’t Fall for Loan Sharks Just Because They Have Trendy Branding
We all know that lenders, moneylenders and credit cards profit when you go into debt, and therefore they can be dangerous. But many of these companies hide their danger with smart marketing. Beware: Any other brand’s consumer debt can be just as dangerous.
In Outline, writer Gabi Del Valle discusses one such company, Affirm. Affirm works with over 1,000 retail partners to enable customers to borrow money for high-value items such as $ 400 pants . Del Valle writes:
“Unlike deferred redemption, Affirm delivers your purchases instantly, but the instant reward price is an interest rate of up to 30 percent. The service is a cross between credit cards and payment by installments, combining the worst aspects of both. And if there is one thing that tech startups have mastered, it is to entice investors to give them millions of dollars to recreate what already exists, like taxis, ordering food at restaurants, and now subprime loans. ”
The difference between this service and a typical high interest loan seems to be mainly marketing. Unlike other loans, Affirm informs in advance about the terms and conditions to which you agree. “We strive for a clear and capacious price. You never have to worry about the extra expense buried in the small print, ”says their website.
Of course, their interest rates, which range from 10 to 30 percent with the average client earning 21 percent, are not as bad as payday loan rates. They even offer fixed deadlines and, most importantly, simple interest, which makes them arguably better than funding unnecessary credit card crap. But as Del Valle points out, the average credit card rate is 17 percent . And, in any case, everyone knows that buying unnecessary crap with a credit card (or personal loan!) Is usually a terrible idea.
But somehow it feels different and it has a lot to do with branding. Much of the criticism of Affirm and other fintech products is that they are just another way to get consumers to make bad financial decisions.
Sure, but I think the even more embarrassing problem is that these companies are doing it under the pretext of helping people . As the founder of Affirm told TechCrunch:
“We cannot be judgmental, but we must be strict. If you can’t afford a $ 200 dress [or presumably a $ 400 pair of pants], we may not be helping these people. “
Okay, honest. And perhaps they do provide people with options (the same argument was put forward in relation to payday loans, from which Affirm worked for itself). It’s a fair argument that they cannot be held accountable for helping these people, but the point is that Affirm gives the impression that they are helping these people when their website boasts, “… fewer people can say : “I will trust my bank to take care of me.” It should not be. Affirm’s mission is to solve this problem. ” They want to “fix this problem,” and then advertise the following:
Here everyone chooses “Confirm” , but the problem is not only for them. It reminds me of the recent fiasco with student loan service company Navient, which the Consumer Financial Protection Bureau (CFPB) was suing for dubious business practices such as misapplying student loan payments. In the lawsuit, Navient said it was under no obligation to act in the best interests of its customers. But that’s not exactly the message you find on their Financial Advice Blog. These companies use financial literacy to trick you into making a bad financial move.
They promote transparency, sound financial decisions, and flexibility (you can go into debt, but that’s on your terms!), But the point is, they make money when you’re in debt. Even worse, when someone encourages them to do so, they say, “We are a financial product, we are not here to help people.” This is good, but it’s unnecessary irresponsible use of hip branding to pretend you’re not in the debt business.
As consumers, it seems like we’re already spending half of our lives trying to make sure we’re not being fooled, but there is another pitfall to watch out for. Don’t fall for companies that use financial literacy as if they are helping you when all they want to do is make money from your bad decisions.