Hey, everyone! This week I'm featuring a guest post on a new payment program Amazon has just unveiled. Take a read and let me know: would you ever use something like this? And if so, what for?
People take out installment loans for any number of reasons: to fund a holiday, help pay for a child’s wedding, cover the cost of home improvements, or just to help fill in the gaps during a financial rough spot. An installment loan can be a good alternative to a short term loan because it allows the borrower more time to pay back the loan over a period of several months.
Now comes online retailing giant Amazon with an installment loan scheme of its own, called Amazon Pay Monthly offering customers a monthly pay option on orders of $400 or more, which can include multiple items. One caveat is that the scheme only applies to those products stocked and sold by Amazon. Merchandise that is stocked and sold by third parties on the Amazon site is not eligible for installment loans.
Actual financing is handled via a trial agreement with Hitachi Capital, with an annual interest rate of 16.9 percent applied, which while high, is about the going rate for unsecured loans. Loan terms are available for two, three, or four years, depending upon the total cost of the order. While Amazon customers in the US have been able to purchase goods on credit via the Amazon store card, the rollout is the first of its kind, offering customers the convenience of shopping and paying for their purchases without ever leaving the Amazon site.
It may be “new” for Amazon but it’s hardly revolutionary...
Perhaps what is most newsworthy about the rollout is that it wasn’t done before now. It is not as if the business model is that new or even that innovative; Littlewoods has been doing the same thing since before the Internet and online shopping ever came into being. The only real difference between the two is the technology used to place and pay for the order. Amazon has simply replaced Littleton’s print catalogue with their own online catalogue, and processes credit applications and repayment contracts via online forms, rather than having orders mailed or phoned in to the store. One other difference, also the result of improved technology, is that application processing and approval for an Amazon Pay Monthly account will in most cases take only a few moments, and in all but the most difficult cases, one business day. The “old school” process of application and approval typically took several days.
Now is the time to exercise self-restraint....
Some analysts speculate that Amazon Pay Monthly will pose a new threat to high street stores, drawing more customers who prefer the convenience of online shopping but who had until now found it necessary to place greater restraints on the amount of their purchases. Though high street merchants may not be happy about it, there’s little doubt that the introduction of installment loans will benefit customers as well as Amazon’s bottom line. Amazon offers competitive pricing compared to other retailers, both online or off, for a wide variety of merchandise; their Pay Monthly option will likely make Amazon an even more desirable shopping resource.
For online shopping addicts who have trouble controlling their impulse to buy, however, the new scheme could spell trouble, and we probably don’t even need to take the time to explain why. Just consider this a cautionary note for all of you Amazon aficionados out there: don’t throw caution to the wind. Utilize Pay Monthly only for a major purchase of something you really need, not for a stack of best-selling novels that you may or may not get around to reading. Don’t let yourself get to the point where you have to take out yet another loan to cover your monthly Amazon payments. Apart from those caveats, though… happy shopping.