Want a PlayStation but don't have the cash for it, nor a credit card to charge it on? You can get the device delivered to you nonetheless at the low, low price of just $120 down, plus $13 a week for 24 weeks, from a new business called AffordIt.
Now, if you do the math, you'll discover that buying something through AffordIt is a staggeringly bad deal. That PlayStation (a refurb, mind you), will cost you $432 if you pay it off, compared to the $299 price on Amazon.com for a new unit with the same specs. But if you live paycheck to paycheck and have no financial cushion--which is true for 50 percent of the U.S. population, I'm told--AffordIt can get you the gear you want for only a small per-paycheck expense (the weekly cost is automatically deducted each week from your checking account).
I talked with CEO Wil Shroter about the concepts and the numbers behind the business. "It's a way for people who have cash flow issues to get the products they want," he says. But at a price. You pay a higher retail amount for the products, though there's no "interest rate" shown on the sale pages. If there were, Shroter says, you'd see an applied rate of 35 percent to 50 percent. That's a nice income for the company. Plus, AffordIt makes money on the retail markup.
Shroter says the applied rate on products is high because he expects default rates to be "ridiculous." In fact, he expects one in four customers to never send in their first payment, though a down payment is required before the company will ship a product. But after poring over the public statements of rental companies Rent-A-Center and Aaron Rents, he believes that he's got the rates figured out so that the company will still turn a healthy profit. (AffordIt doesn't rent products. Once it's shipped, the customer owns it.)
Like paycheck advance companies, Shroter wants AffordIt to appear friendly, despite its high actual fees. He wants to give people achievable payments and to "tread lightly," if collections are necessary. Besides trying to re-debit a deliquient account every week, AffordIt may not actually put accounts into collections, since the expense of doing so compared to the amount of debts might not add up. Also, "we don't want to build a thuggish brand," Shroter says.
But AffordIt is in a morally ambiguous position. On one hand, selling people who really cannot afford $299 PlayStations the same product for $432 over the span of six months will strike some as usurious. On the other, one could argue that credit cards let people do the same thing, just at different interest rates.
The current site is proof-of-concept for raising operating funds. Schoter's goal for the company is to make it an alternative checkout engine for retail sites, the same way Bill Me Later (review) is. eBay acquired Bill Me Later in 2008.
I'm of two minds on AffordIt. If my job were to invest in start-ups, I wouldn't put my money into this company because I don't like the business of helping people living paycheck to paycheck to buy things they don't need. Yes, I'm taking a high-minded, snobbish position, but we're talking about my pretend money here, and I can do with it what I want. But I do think that Shroter is smart and realistic, and I bet that he'll be able to raise money quickly. Barring execution missteps, he should be able to turn this into a profitable business.
What do you think of AffordIt?