The Save2Buy model is a hybrid between a lay-by and more traditional credit.

In a world where credit has become a way of life, is it possible to find a system that allows someone to purchase an item and have use of it whilst paying it off, but without being fleeced by high credit costs?

The concept behind Save2Buy is ultimately a hybrid between a lay-by and traditional credit with the customer able to take ownership before the item is fully paid off.

Over a 12-month period, the total cost of credit is 20%. In comparison, most one-year lending agreements see customers paying around 40% given the high fees and interest charged. There is also no need for a credit check, so customers with a poor credit history can still buy an item and not pay excessive interest.

Anthony Wald, general manager of Apricity Capital, the company behind Save2Buy, started the concept a few years ago after becoming extremely concerned about the rising debt levels created by the microlending industry.

Having worked in the retail industry, he saw firsthand how trade unions would offer members loans to purchase durable goods, and how people with already poor credit records ended up paying even more to buy items on credit, only worsening their financial position.

“The bad debt ratio is so high, it is an impossible situation, something had to give. I wanted to find a solution that was equitable, made business sense and took human nature into account.”

The human characteristic of ‘present bias’ means that people place such a high value on having something today, that they are prepared to pay double or even triple the amount rather than waiting to buy it later when they have the funds available.

Wald believes they have found a balance between delayed gratification and present bias. The customer purchases the item today, pays six months of installments and then receives the television, washing machine or whatever item they purchased, and finishes the remainder of the payments over the following six months.

No credit checks required

The model is based on an understanding of human nature: if someone has met their first six months of payment then there is a high likelihood that they will complete their payments.

“Everyone is approved. We give credit not on past but future behaviour,” explains Wald.

If someone defaults within the first six months, they get all their money back less a R150 admin fee with no negative listing on a credit bureau.

By not requiring a credit check, they are able to cut down on administration, thereby reducing costs.

Having gone through the upheaval of COVID and job losses, Wald says there were some people who had already taken ownership who had to make some payment arrangements, but in all cases, they were able to resume their payments after a break and no penalties applied.

Wald says of the over 1 000 customers on the website, most of them are repeat buyers and many make their big item purchase around June/July so that they can take ownership in time for the festive season.

Wald says the total cost of 20% was selected partly because it was easy to calculate. For example, if you see a TV at a retailer and it costs R10 000, if you put your finger over the last zero it shows what the Save2Buy installment would be for 12 months (R1 000 a month). The total cost is R1 000 x 12 months = R12 000 which is the total price shown on the website.

At the current cost of capital and compliance, a 20% all-in fee is not feasible for the lender but Wald says they make their money by squeezing the supplier, not the customer.

“We order in volume and are able to get a discount to the retail price a customer would pay at another large retailer.”

The website has a range of household appliances already listed; however, Wald says if a customer sees a specific item or model at a large retailer, they will be able to provide it to them.

While the best way to make a purchase is to save for it, sometimes it is difficult to wait a year to replace that broken fridge or TV, in which case Save2Buy could be a good compromise.

This article first appeared in City Press.