Shopping online is more popular than ever; When COVID-19 hit the United States, millions of consumers turned to the internet to buy things from home they’d normally shop for in stores.
The “buy now, pay later” concept, planted in the United States several years ago, took root and grew like wildfire. Affirm, one of the largest companies in the industry, works with some big-time retailers to offer installment loans.
Table of Contents
- What Is Affirm?
- How Does Affirm Work?
- My Experience With Affirm
- Affirm Review: What Happens if You Miss a Payment?
- How Does Affirm Determine Your Spending Limits?
- Affirm Pros
- Affirm Cons
- Affirm Alternatives
Affirm Review: Quick Look
|Affirm at a Glance|
|Term Length||1 to 48 months|
|Loan Amount||Up to $17,500|
|Credit Bureau?||Reports to Experian|
What Is Affirm?
Founded in 2012, Affirm is an installment loan company that offers point-of-sale financing in conjunction with thousands of merchants. It’s part of the growing “buy now, pay later” (BNPL) segment in the United States.
Affirm co-founder Max Levchin is the CEO of the San Francisco-based company. Levchin also co-founded PayPal with Peter Thiel.
Affirm issued an IPO on NASDAQ on Jan. 13, 2021. Though it started online, Affirm is also available in-store in conjunction with its app.
The company markets itself as a credit card alternative, offering loans of up to $17,500 with fixed interest rates between 0 and 30%.
Affirm typically offers terms of three, six or 12 months.
Some of the prominent merchants that work with Affirm include Adidas, Amazon, Best Buy, Expedia, Neiman Marcus, Nike, Nordstrom, Peloton, Walmart and Warby Parker. In September 2021, Walmart announced that it has eliminated layaway and is promoting Affirm as an alternative for its customers.
How Does Affirm Work?
With some rare exceptions, if you’re at least 18 years old and you’re a permanent resident or citizen of the United States, you’re eligible to go through Affirm’s loan prequalification process.
You can apply at a partner store, online or via the Affirm app. You’ll need to input personal information such as your date of birth, the last four digits of your Social Security number, your email and your phone number. You also must agree to receive texts from the company.
Affirm will run a soft credit check. This will not impact your credit score. The company will consider whether you have prior history with Affirm, the merchant’s available rate and other factors.
Within seconds, you’ll know the amount, interest rate and term length for which you qualify. Or you’ll receive an email explaining why you got rejected.
Terms and APY: What Does Affirm Offer?
If you do qualify, it’s important to read the fine print before you accept. Again, Affirm loans can range from 0 to 30% interest, and from one to 48 months, though most often, the terms are three, six or 12 months. It’s important that you understand the specifics before accepting.
Some merchants offer 0% APY (annual percentage yield) for a limited time or for qualified purchases. According to CNBC, Affirm says about 43% of its loans offer 0% APY.
The merchant, your credit score and the amount you request all impact your interest rate, the terms and even whether you need to make an immediate payment (or deposit). Affirm sometimes requires an initial deposit of up to 50%.
You’ll click “Confirm Loan” to accept the company’s offer. Your first payment typically will be due within 14 or 30 days of your initial confirmation.
You can pay with a debit card, check or via your bank account. It’s possible to set up automated payments. Affirm will send you text message or email reminders about your upcoming payments.
According to CreditCards.com, the average interest rate on a credit card in the United States was 16.22% as of Sept. 15, 2021. So your interest could be 0%, or it could be much higher than what an average credit card offers.
There’s no penalty for paying off an Affirm loan early. Remember that the longer your term extends, the more interest you’ll ultimately pay. If you’ve ever bought a car, you’re probably familiar with the sales tactic where your monthly payments are lower, but you pay for longer.
My Experience With Affirm
Affirm’s website appears to offer a user-friendly catalogue of its partner brands.
If you hover over “Shop” on the homepage, you’ll see some shopping categories such as “Travel” and “Electronics.” But if you click on any of those categories, the website display is wonky at best. And when you click “View all” to see a full list of brands, you have to create an account to get to the actual list.
Even once you create your account, the Affirm app is much easier to navigate than the website.
Again, Affirm is wonky. It required me to generate a one-time-use “virtual card” (as in “credit card”) from the checkout page when I was ready to buy. But it didn’t let me complete the transaction from my laptop.
I had to navigate back to the retail brand from inside the Affirm app and relocate my purchase. I had selected two items from the store originally, but I forgot about the second item by the time I switched to the app.
So when I completed that purchase, Affirm told me there was still money left on the virtual card. But when I located the second item and tried to re-input the card details (card number, expiration date, security code), the transaction failed.
Affirm originally gave me $100 on my virtual card. I paid nothing up front but had payments scheduled for $33.33, $33.33 and $33.34 listed on my account, along with an “unused” (and apparently inaccessible) amount of $25.46 on the virtual card.
The app did offer a toggle switch that allowed me to automate my payments, even though that wasn’t the default setting.
Affirm Review: What Happens if You Miss a Payment?
Afterpay, a major Affirm competitor, charges late fees of up to 25%. However, it doesn’t report your activity to credit bureaus.
Affirm does the opposite. It doesn’t charge late fees. However, it sometimes reports activity to Experian, one of the major credit bureaus. So if you miss a payment, it could adversely impact your credit.
Whereas Afterpay limits first-time customers to about $500 in credit and gradually increases its limits, Affirm can approve loans as much as $17,500. While 25% is a steep fine for a late payment, that’s $125 on a purchase of $500. But there are harsher consequences: ruining your credit or making a five-figure purchase on something you can’t afford.
There’s no limit to the number of loans you can take from Affirm. However, it evaluates each new request independently and considers your existing credit usage.
Affirm says it doesn’t report on-time payments to Experian and that it never reports to the other credit bureaus. So using Affirm won’t help build your credit, but it sure could hurt it: The company will report most missed payments.
Your payment history, available credit, the age of your accounts and how often you’ve missed payments all impact your credit score.
A Credit Karma report from February 2021 reported that 42% of Americans have used a “buy now, pay later” service. Among that group, 38% had missed at least one payment and 27% reported a credit score decrease.
“So if you want to use a ‘buy now, pay later’ as an interest-free way of spreading payment out, just know that you’ve got to stay on top of it,” Clark Howard says. “And you’ve got to make sure you can come up with the money to pay it on time.”
How Does Affirm Determine Your Spending Limits?
Affirm takes the following dynamics into account when it determines how much money it will allow you to borrow.
- Age of your Affirm account
- History of on-time payments
- Credit score
- Merchant’s interest rate
Not everyone will get approved for (or even come close to) the $17,500 maximum limit.
Here are some of the company’s strongest attributes:
- No late fees. Affirm won’t charge you if you’re late on a payment. It also won’t impose service fees or fees if you pay off your debt early.
- Potentially 0% APY. Some merchants offer 0% interest to qualified individuals. Others offer zero-interest deals as part of limited-time offers.
- Fixed-rate payments (simple interest). Credit card companies charge compound interest, which hits your wallet harder than simple interest. Affirm offers simple interest, which means the amount of your payments are fixed.
- Partners with high volume of merchants. As one of the biggest names in the BNPL space, Affirm works with lots of brands, including some huge names.
- Offers alternative financing. If you have bad credit, no credit or you simply prefer to avoid working with traditional financial institutions, Affirm offers you an alternative.
Here are some of the company’s weakest attributes:
- Potentially high interest rates. Although Affirm makes some interest-free loans, it reserves the right to charge up to 30% APY. At the higher end, that’s steep — much steeper than most credit card companies.
- May encourage excess spending. Getting an item you want for free at the time of purchase seems fun, but you’ll eventually pay at least full price. It’s easier for some people to spend on credit or defer payment than to spend cash or money in their bank account.
- Doesn’t give refunds for interest paid on returns. Let’s say you make a purchase through Affirm and then decide to return the item. Even if the merchant issues you a refund, Affirm won’t refund any interest you’ve paid.
- Reputation for poor customer service. Scour the online reviews from blogs and sites that allow user reviews, and you’ll find plenty of unhappy remarks about Affirm’s customer service.
- Could adversely impact your credit. If you fail to make a payment on time, Affirm may report it to Experian, one of the major credit bureaus. It’s possible this could wreck your credit for years to come.
- May require significant down payment. The company sometimes requires money upfront. These down payments can range up to 50% of the amount of your purchase.
- Requires you to be organized. Although you can set up automatic payments, you’ll have to do that manually. So if you buy via Affirm and do nothing else, you need to be organized enough to make all your payments on time.
Affirm markets itself as a credit card alternative. So in many ways, using a credit card instead of a “buy now, pay later” service is a realistic alternative — especially if you pay off your credit card balance each month and generate cash back rewards.
The company’s merchant partners offer 0% interest nearly half the time, often on three-month terms.
If you pay for items in full at the time of purchase, you won’t have to use Affirm, pay any interest or worry about making payments on time. But if you’re going to use a “buy now, pay later” option, some of the company’s biggest competitors include:
- American Express
Affirm offers a wide range of installment loan options.
Your interest rate could be 0% or 30%. Your term could be one month or two years. The amount of your loan could be less than $50 or more than $17,000.
It’s important for you to understand those details completely before you accept an offer from Affirm.
It’s especially worrisome that so many “buy now, pay later” customers are wrecking their credit, which can happen with Affirm. At its heart, this is a company that makes money by adding to your debt.
Be careful and intentional when you consider Affirm or its competitors as a way to finance your purchases.