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Apple Expands Monthly Installments to Just About Everything

By Evan Niu, CFA – Jun 16, 2020 at 8:00AM

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At least if you have an Apple Card.

"But as you know, having access to the Card, at least in the United States, gives us more degrees of freedom, and that is not using our balance sheet," Apple (AAPL 0.23%) CEO Tim Cook said on the last earnings call. "But we play a key role in deciding what kind of programs go with the Card."

The chief executive was responding to an analyst question regarding using Apple's balance sheet to offer financing plans for more products following the launch of a new iPhone financing plan in December. Cook teased that the company was "working on doing that for other products as well."

Physical Apple Card

Apple Card is issued by Goldman Sachs. Image source: Apple.

Installment plans for everything

This week, Apple introduced new financing plans for other devices including Macs, iPads, and even lower-cost accessories like AirPods, in line with Cook's comments, as well as a recent Bloomberg report that said such a move was imminent. You can even finance keyboards or Apple Pencil styluses through Apple Card.

The monthly installment plans allow customers to spread out the cost of new hardware purchases with no interest for varying terms that range from six months to two years. Installment plans are a time-tested way to make big-ticket purchases more affordable, thereby boosting demand.

As Apple has been slowly ratcheting up its prices across the board in recent years -- the new Mac Pro can be configured to cost over $50,000, for instance -- installment plans will offer considerable flexibility for consumers.

Separately, Apple still offers its co-branded credit card issued by Barclays, which also has a promotion for no-interest financing for up to 18 months, depending on the size of the purchase. Much like Apple Card, which is issued by Goldman Sachs, the Barclays card doesn't use Apple's balance sheet, either.

There is no Bank of Apple

Apple has never used its own balance sheet to provide financial backing to any of these types of programs, despite the fact that the Cupertino tech giant is sitting on $193 billion in cash. Even the iPhone Upgrade Program, introduced almost five years ago, is backed by Citizens Financial.

There are several key benefits to this approach of outsourcing these underlying credit operations. For starters, Apple is able to recognize the related revenue immediately up front instead of having to defer revenue recognition. On top of that, the company doesn't have to take on any credit risk or deal with any of the hassles of running a financial institution, such as estimating loan losses or maintaining regulatory reserve requirements, among others.

Apple is not a bank and has no interest in becoming one. (Well, unless it's trying to strong-arm a supplier.)

Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has a disclosure policy.

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