Buy now, pay later (BNPL) apps let you purchase items either in-person or online and pay for them in installments, usually from three months to one year. But what exactly is a buy now, pay later loan? And is it a good idea to use them when offered to you?
One of the leading companies in the BNPL space is Affirm. They have become so popular that their name may have popped up during the checkout process when you shop. While BNPL loans like Affirm serve a purpose, they are fraught with potential pitfalls.
In this article, we’ll cover exactly what Affirm is, some Affirm alternatives, and whether or not BNPL loans are a smart choice for you.
Table of Contents
What Is Affirm?
Affirm is a fintech company that offers Buy Now, Pay Later loans, also known as Point of Sale Installment loans. The company was founded in 2012 and went public with its first IPO on Nasdaq trading in January 2021.
Affirm has an exclusive contract as Amazon’s BNPL partner through 2023. Affirm also works with thousands of other retailers around the globe, like Walmart, Target, Sony, Expedia, Peloton, Poshmark, Adidas, Travelocity.com, Home Depot, American Airlines, etc.
How Does Affirm Work?
Affirm partners with retailers to offer consumers installment loan payments for purchases they want to make.
Qualifying purchases can be anywhere from $100 to much larger amounts. Merchants are responsible for setting the minimum purchase amount on their site for Affirm and other BNPL users, although some BNPL apps have their minimums and limits.
Your BNPL payment option will be presented as you shop, purchase, and check out. You can also download the Affirm app onto your computer or mobile device for easy shopping.
Affirm lets you choose between bi-weekly or monthly installments. Choose the payment amount and term that works best for you. Affirm may or may not charge you interest on your purchases, depending primarily on your credit score.
If you’ve got great credit, you could be offered a 0% financing option. However, you could also pay between 10% and 30% interest if your credit record is less than perfect.
The interest rate you’re offered can also depend on the length of time you choose to finance your purchase. A shorter financing term usually means that you’ll pay less interest.
Some purchases might require a down payment to finance with Affirm. The down payment amount will depend on your credit record and other factors.
Is Affirm Safe?
You might be wondering if Affirm and similar types of BNPL loan companies are safe to use. The short answer would be yes and no. Affirm uses AES 128-bit encryption or higher to protect your data, so their site and systems are secure.
However, BNPL companies such as Affirm don’t offer the same consumer fraud protection benefits you can find with credit cards.
You also need to stay on top of BNPL loans, like the ones Affirm offers. If you end up with multiple loans, you may have trouble keeping track of payments and debt accumulation.
Affirm makes purchasing on installment nearly seamless, which does produce some risk of overextending yourself.
How Will Affirm Affect My Credit Score?
Affirm will check your credit, and credit pulls can affect your credit score by a few points. In addition, Affirm does report some installment loans to the three major credit bureaus.
If you qualified for a 0% interest loan with bi-weekly installments and a term of four months or less or were only offered a 3-month, 0% interest loan, Affirm will not report your loan activity to credit bureaus.
However, longer loan terms with Affirm will likely result in activity being reported to the three major credit bureaus.
This is a positive if you’re making all payments on time. However, your credit score could drop if you get behind. Not all BNPL companies report your payment activity to credit bureaus.
Alternatives to Affirm
Affirm is one of the largest BNPL apps, but several other companies offer a similar service. Here are a couple of others you may want to check out.
Sezzle
Sezzle is yet another buy now, pay later fintech. It was founded in 2016 and is now available at over 47,000 retail locations.
This BNPL company offers four installment payments over a six-week period on any purchase over $35. Each payment equates to 25% of the purchase total, and the first installment payment is due immediately upon purchase.
You won’t pay interest on your purchase, and Sezzle is free to use. Sezzle earns money by charging payment fees to merchants. One nice thing about Sezzle (depending on your viewpoint) is that the installment terms are shorter, which helps to ensure your debt doesn’t get out of control.
However, the larger payments may make Sezzle unusable for some consumers. But it is one way to avoid making the entire purchase cost upfront.
Afterpay
Afterpay is a buy now, pay later fintech founded in 2014 in Australia. It has since expanded to the UK, Canada, New Zealand, and the U.S.
Like Sezzle, Afterpay lets you pay in four installments over a six-week period. The first payment is made at the time of purchase. Afterpay doesn’t charge interest or fees, except for a late fee that can run as high as 25% of the original order amount
Note that Afterpay does pull a soft credit check when you apply for the app. However, Afterpay does not report to credit bureaus as of this writing.
Perpay
If you’re worried about missing BNPL due dates or budgeting for your payments, Perpay may be for you. This app lets you automatically send a portion of your paycheck to purchases that you’ve made within the Perpay marketplace (which currently includes brands like Apple, Coach, Dyson, KitchenAid, and Sony).
With Perpay, you set up payroll direct deposit, which transfers a portion of your paycheck each payday to Perpay until your purchase is paid off.
Perpay doesn’t charge any interest or fees, and you may even be able to use Perpay to help build your credit score — after four months of on-time payments over $200, Perpay will start reporting your payment history to all three credit bureaus.
If you’re into collecting rewards, Perpay lets you do that, too, with its own credit card that can be used outside of the app. It earns 3% rewards, which can then be redeemed in the Perpay marketplace.
Alternatives to Buy Now, Pay Later Loans
Buy now, pay later loan apps are not without their downfalls. They may seem harmless on the surface, but it’s easy to fall into the trap of high-interest rates and multiple loans that pile up to become unmanageable.
While your best bet is to always pay for an item in full when you purchase it, here are some BNPL alternatives for when that’s not an option.
Zero Percent Credit Cards
If you find a zero-percent credit card, you may want to choose that over a BNPL loan app.
Many credit cards have welcome offers that include a zero-percent period, no annual fee, or bonus rewards points up front. Some cards combine these incentives in their offer. In other words, the company will pay you to get and use the credit card.
If you can get your hands on a zero-percent offer, credit cards provide more consumer protection than BNPL apps like Affirm.
The U.S. government has rules that protect consumers from credit card fraud, overreaching fees from credit card companies, and more. Because BNPL apps aren’t regulated as strictly, they typically don’t offer those types of protections.
Find Ways to Cut Your Costs on Purchases
Another alternative to a BNPL loan app is to find ways to pay less for the purchases you need to make. For instance, you could wait for the items you want or need to go on sale.
Not an option? Consider working to get free access to store purchases. For example, you could take advantage of free Amazon credit cards and use those free cards to buy what you need.
Another option is to opt for used items you can buy at a reduced price through Facebook Marketplace or Craigslist. Buying used is one of the great money-saving hacks.
Consider Paying Cash Up Front
People often use BNPL loan apps because they don’t have the cash on hand to pay for the items they need or want. You can break that paycheck-to-paycheck cycle by making regular transfers into a savings account. And using a high-yield savings account can help you increase your savings balance even more.
High-interest savings accounts are ideal for storing your emergency fund or saving for other short-term financial goals, such as upcoming purchases or a vacation.
Sell Some Stuff
Is there something you want to buy? How about selling some of the stuff you already have (and don’t use) to buy something new you want? There are dozens of apps you can use to sell your stuff online. And most take less than a minute to list your stuff for sale.
Instead of taking out a loan to finance your purchases, consider decluttering your house and earning cash to pay for your purchases upfront.
The Bottom Line
Affirm, like other BNPL apps, offers a convenient way to get what you need or want now without paying the full price upfront. However, they can also be a risky venture that could put you in a place where you have too many monthly payments and not enough cash to make those payments.
Additionally, BNPL loan apps lack the consumer protection that credit cards require, so you take on more risk when you use a BNPL app.
Think long and hard before using a fintech such as Affirm. Better yet, find a way to pay cash for your purchases and avoid borrowing money altogether.
Fran says
I like Home Depot. Every year on July 04 they have a large appliance sale. My home is 8 years old and all of my major appliances went. It used to be durable goods had a lifetime of 15 years. Now it is 7 or 8 years. I had to replace my Refrigerator and both microwaves. My credit is good so I took out a new credit card with H.D and was given 18 months @ 150.00 per month. Since all my bills are paid by ACH. It was easy. Prior to July 2022 my hot water tank went, the garbage disposal, the central air and the sprinkler-system. The gate fell off the privacy fence as the builder did not use treated lumber for the gate upright timbers as well as having the back steps from the porch had to be replaced and a broken one- inch water line to the sprinklers. The year before we had a hail- storm that destroyed my roof gutters and downspouts. That was a 24K job. Moral of my story– Keep your credit in excellent shape as these things can happen to you. I also learned about the deductible on your Home-Owners policy with a 2% deductible. The bench- mark is the stated replacement value on your policy. The Big Figure.
Yes! An emergency fund is great but when you have a bunch of things going at once, you’ll sometimes have to rely on your credit. It’s great you were able to lean on it during those difficult challenges!