America's love affair with cars runs deep. Growing up in California and now living in Phoenix, I can't imagine not being able to hop in my car at a moment's notice to visit a client or jump in my truck for a last-minute off-road camping adventure with family and friends. It's nothing short of a must-have for my qualify of life.
But Americans' love affair with our four-wheeled friends can create an underlying and very unhealthy problem for many.
While most of us are familiar with the challenge of fitting a car payment into the household budget, many overlook the considerable expenses of maintaining and repairing a vehicle.
The Federal Reserve estimates 40 percent of Americans would be unable to cover a $400 emergency automobile expense. This figure takes on a new sense of urgency when the family car needs repair. For example, a minor fender bender can cost upward of $5,000. If the family's insurance covers the repair, large deductibles might be more than many can afford.
These disruptions are significant causes of physical and mental stress. The inability to get to work, get to the doctor or get the kids to school can wreak havoc on an otherwise healthy household.
But loans exist for these situations, right? Well, yes, but very often these loans end up contributing to, rather than alleviating, stress on households.
According to a AAA study, 1 in 3 American drivers would struggle to pay for unexpected car repairs without going into debt. But that debt is often egregiously expensive, at 26 to 36 percent interest, and comes riddled with tricks, traps and gimmicks such as deferred interest that balloons if the family is a day late or a dollar short on payment.
Dealerships that genuinely care about their customers shouldn't condone this treatment. And with today's underwriting technology and products such as closed-end loans offered instantly at the point of sale, customers can now consider transparent, flat-fee and low-cost alternatives available in a buy-now-pay-later option.
You may be familiar with "Buy Now, Pay Later." First-generation offerings were typically utilized for smaller purchases, such as installment plans for a few hundred dollars. I call this BNPL version 1.0. They're helpful but very limiting for people who need larger amounts and longer terms to pay off the amount owed.
Newer companies are at the forefront of a revolution. BNPL version 2.0, developed with significant changes, is expected to transform how Americans pay and merchants get paid for large transactions such as car repairs.
BNPL 2.0 provides a low, flat monthly fee that never changes. It's comparable to a fixed-rate mortgage vs. a variable-rate one. Beyond the consumer benefit, these loans increase revenue and margins for the merchants. Repairs more often get done instead of being declined or delayed. And consumers are more willing to pay more for better parts and skilled technicians.
But new challenges for families — including rising prices and inflation — are already emerging on the horizon.
Given the potentially troubled waters ahead, it is easy to imagine people who are already struggling to make ends meet may need additional tools and alternative financing — beyond the traditional means — to navigate this era. Simply put, the product flexibility and transparency that BNPL 2.0 brings can be a massive support to many Americans in the future.