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Interest-free loans to pay off specific purchases are becoming more widespread in South Africa, both online and in physical locations.
At least three local firms, LayUp, PayJustNow, and Payflex, are now competing to provide buyers with an enticing alternative to the otherwise archaic lay-by option. These redesigned lay-by services allow customers to pay a deposit up front, in the event of at least two received products, and then pay the amount owed over the following months – at no extra expense.
It’s a no-strings-attached deal for customers. After joining up and gaining permission, you’ll just need to pay an agreed-upon deposit (typically around 25%) and then make your monthly payment deadlines.
Unlike typical lay-bys, additional payments do not raise the price of the item you’re purchasing, and there are no fees to pay. Some will even release the products once only a minimal deposit is made. As long as you don’t break the agreement, this is effectively an interest-free loan to pay off a certain retailer’s item or things.
There are, of course, certain limits. The first is that it looks that these new lay-by businesses are attempting to lock stores into exclusive arrangements, which means that you have limited options for who handles your lay-by.
For the time being, large merchants’ support is similarly restricted. Although Edgars, the Pro Shop, Cotton On, and Cape Union Mart are experimenting with
This appears to be part of the business plan of this new generation of lay-by enterprises. Their sales pitch is mostly geared at businesses, with claims such as “convert up to 60 percent more customers today” “Boost sales” and “Increase average order value by up to 25 percent ”
This is an especially appealing choice for specialty shops trying to expand their internet presence and, ideally, improve sales. In most circumstances, they are also not required to make any upfront payments to lay-by processing businesses or take any risks in order to give their consumers interest-free payments. Instead, they collect a fee from the merchant on each completed sale, which is normally approximately 5%.
The risk to consumers is that retailers will eventually determine that the expense of interest-free payments should be paid by the customers, similar to how smaller independent stores used to levy a fee for credit card payments or cash discounts. But, for the time being, it appears that this isn’t occurring, and most retailers are content to absorb the expense in the expectation that it will be compensated by the increased conversion rate.
The offer to shoppers is as enticing, but not without pretty extensive terms and conditions that will keep you in line if you fail to make your payments. Although the firms say their late payment penalties are reasonable, considering the cheap value of the transactions, they are not.
As with normal credit accounts, you will also have to build a reputation if you want to extract real value from the service. First-time purchases are limited to one at a time of nominal amounts of around R1,000 to R1,500 – but each time you prove your ability to pay these off you’ll earn the right to receive higher limits and make more simultaneous orders.