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Affirm review: When should you use 'buy now, pay later' provider?

'Buy now, pay later' service Affirm offers loans with APRs ranging from 0% to 30%.

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Select’s editorial team works independently to review financial products and write articles we think our readers will find useful. We earn a commission from affiliate partners on many offers, but not all offers on Select are from affiliate partners.

Readers: have you used a 'bnpl' provider? Did you have a positive or negative experience using a POS loan? If want to share your experience using a POS loan, we'd love to hear it. Email trina.paul@nbuni.com.

During the pandemic, online shopping became a necessity for most people. Rather than scouring the aisles of a grocery store or strolling around the mall, most people opted for the ease and safety of buying items online and getting them shipped to their homes.

'Buy now, pay later' made it even easier for consumers to purchase items online. Now, when consumers buy a big ticket item like a Peloton bike or made smaller purchases like thrifted clothing from ThredUp, they no longer have to make one-lump sum payment.

People can spread their expenses over a fixed period of time and opt for loans that boast 0% interest rates and no late fees with point-of-sale loans. In fact, a recent study done by Morning Consult found that 17% of U.S. adults used a 'buy now, pay later' loan in the month of June.

Affirm is one such popular 'buy now, pay later' option. Affirm gives customers the ability to pay off their loans in a typical time frame of three months to one year and is integrated into the websites of many retailers such as Target, Walmart, Peloton, Neiman Marcus and Nike.

Below, Select looks at some of the benefits and drawbacks of using this POS loan provider.

How does Affirm work?

Like most 'bnpl' providers, you can use Affirm either directly through its app or website or through the individual merchant. You can download the app on the Google Play Store and the Apple Store.

If you opt to use Affirm at checkout, it's available on a variety of different retailers' websites, from travel services, like Expedia and Priceline, to electronics companies like Best Buy.

APR and fees

Interest rates for Affirm loans can range from 0% to 30%, which is greater than the highest APR on most credit cards. 43% of loans taken out at Affirm have a 0% APR, according to the company.

When Affirm determines your eligibility for a loan and your interest rate, the company looks at your personal information, your credit score, when you applied for the loan, your payment history with Affirm (if you have any) and how long you have had an Affirm account.

Another important factor Affirm considers when deciding your interest rate is the individual merchant's APR. Some merchants offer 0% interest for a limited time and some offer a 0% APR for qualified customers.

When you pay interest on your Affirm loan, you'll pay simple interest, not compound interest (or interest on your interest). In other words, your monthly payments will be fixed so you won't have to worry about your installment payments increasing over time.

Affirm also doesn't charge late fees so if you can't make your payment on time, you won't be hit with any fees. However, if you're late with your payments, you could be denied an Affirm loan in the future and for loans that are reported to Experian, it could end up hurting your credit score.

You'll also be able to choose the duration of your repayment loan, anywhere from 1 month for small purchases to 48 months for more expensive purchases. Your installment payments are typically due either biweekly or monthly.

How to apply for a loan

After you've submitted some information about yourself to Affirm, you'll be approved or denied a loan almost instantaneously. Affirm won't change the terms and conditions that you agree to. You want to read the fine print carefully to figure out if you'll be able to make your installment payments over the duration of the loan. Sometimes you'll be approved for a loan, but will also have to make a down payment on it.

If you're rejected for a loan, you'll receive an emailing telling you why.

If you're unsure about whether you want to apply for a loan, Affirm also offers consumers the option to 'prequalify' for a loan which allows you to see the value of the loan you would qualify for. You can prequalify for a loan in two ways: either through the app or the merchant's website. Prequalification does not affect your credit score.

Payment methods

With Affirm, you can pay with either your debit card, bank account or check. You can also use autopay, which is a good option if you don't want to go through the hassle of remembering when your payments are due. If you're late with your payments, Affirm doesn't charge any late fees so if you're ever late for a payment, you'll merely be reminded through emails or text messages.

If you're delinquent on your payments or default on your loan, Affirm could deny you a loan in the future and that information may be reported to credit bureaus which could result in a decrease to your credit score.

Loan amount

Each loan you take out through Affirm is underwritten individually. You're able to take out multiple loans through the provider and being approved for one Affirm loan does not guarantee that you'll be approved for another loan. The maximum value you can take out on one loan is $17,500.

Impact on credit score

People should be aware that Affirm can have a positive or negative effect on their credit score. Whether or not Affirm has an effect on your credit score depends on a variety of factors such as the type of loan and your payment history. When Affirm first determines your eligibility for a loan, they perform only a soft inquiry which has no effect on your credit score.

When it comes to paying off the loan, the provider reports only some loans to Experian. Specifically, it does not report loans with 0% APR and 4 biweekly payments or loans where people were given one option of a three month payment term with 0% APR.

If Affirm does report your payment history to Experian, the entire loan history is reported, regardless of whether it's positive or negative. When this happens, your payment history, the amount of credit you've used, the amount of time you've had the credit and late payments are all reported to Experian. By defaulting on your loan or making late payments, you risk decreasing your credit score.

Returns

When you return an item, you'll be returning it through the merchant. If you're buying an item that you're not sure you'll keep, a POS loan probably isn't your best choice: Affirm only refunds the principal amount on the loan. In other words, any interest that you paid on your purchase won't be refunded to you.

Bottom line

Since the terms and conditions on Affirm loans vary, whether this POS loan is a good fit for you depends on your financial constraints and the specific terms of the loan. If you don't read the fine print on your loan when you sign up, you might be surprised by double digit interest rates and negative payment history being reflected on your credit report.

If you're purchasing an item that incurs a high interest rate and won't be able to afford to pay it off months in the future, it's best to skip out on the POS loan and stick with a credit or debit card. You might also be able to secure a lower APR on a credit card and if you can pay off your monthly credit card bill, you can avoid APRs altogether.

There are numerous credit cards that offer an introductory 0% APR period on purchases so you can buy a big-ticket item and spread out the cost over time without pay interest — but you'll want to pay it off before the introductory period ends so you can avoid paying any interest.

The Chase Freedom Flex℠ and the Blue Cash Everyday® Card from American Express are cards that offer an introductory 0% APR period. You'll also earn cash back on your purchases.

However, If you're able to secure a 0% APR on your loan, Affirm could be a good choice since it allows you to avoid paying the entire cost of an item upfront — this could be especially useful for big-ticket items like furniture or exercise equipment. An Affirm loan could also be a better choice than a credit card if you don't think you'll be able to pay your monthly credit card bill on time and in full.

Chase Freedom Flex℠

On Chase's secure site
  • Rewards

    5% cash back on up to $1,500 in combined purchases in bonus categories each quarter you activate (then 1%), 5% cash back on travel booked through the Chase Ultimate Rewards®, 3% on drugstore purchases and on dining (including takeout and eligible delivery services), 1% cash back on all other purchases

  • Welcome bonus

    $200 cash back after you spend $500 on purchases in your first three months from account opening

  • Annual fee

    $0

  • Intro APR

    0% for the first 15 months from account opening on purchases and balance transfers

  • Regular APR

    16.49% - 25.24% variable

  • Balance transfer fee

    Intro fee of either $5 or 3% of the amount of each transfer, whichever is greater, on transfers made within 60 days of account opening. After that, either $5 or 5% of the amount of each transfer, whichever is greater.

  • Foreign transaction fee

    3%

  • Credit needed

    Excellent/Good

Terms apply.

Blue Cash Everyday® Card from American Express

On the American Express secure site
  • Rewards

    3% cash back at U.S. supermarkets (up to $6,000 per year in purchases, then 1%), 3% cash back at U.S. gas stations, (up to $6,000 per year, then 1%), 3% cash back on U.S. online retail purchases, on up to $6,000 per year, then 1%. Cash back is received in the form of Reward Dollars that can be easily redeemed for statement credits.

  • Welcome bonus

    Earn a $200 statement credit after you spend $2,000 in purchases on your new card within the first 6 months.

  • Annual fee

    $0

  • Intro APR

    0% for 15 months on purchases and balance transfers, from the date of account opening

  • Regular APR

    16.24% - 27.24% variable

  • Balance transfer fee

    Either $5 or 3% of the amount of each transfer, whichever is greater.

  • Foreign transaction fee

    2.7%

  • Credit needed

    Excellent/Good

See rates and fees, terms apply.

For rates and fees of the Blue Cash Everyday® Card from American Express, click here.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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