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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?
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 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.
The Chase Freedom Flex® is an excellent cash-back card for maximizing your spending in a variety of categories.
- Long intro APR for purchases and balance transfers
- Rewarding quarterly bonus categories
- No annual fee
- Bonus categories are capped each quarter
- Has a foreign transaction fee
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 Chase Travel℠
- 3% on drugstore purchases and on dining (including takeout and eligible delivery services)
- 1% cash back on all other purchases
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
The Blue Cash Everyday® Card from American Express has no annual fee and earns bonus rewards on a wide range of common expenditures.
- Up to $264 in streaming service and meal kit credits every year (subject to auto renewal)
- High cash-back rates in popular spending categories
- No annual fee
- The best bonus cash-back categories are capped
- Has a foreign transaction fee
Highlights
Highlights shown here are provided by the issuer and have not been reviewed by CNBC Select’s editorial staff.
- Earn a $200 statement credit after you spend $2,000 in purchases on your new Card within the first 6 months.
- No Annual Fee.
- Enjoy 0% intro APR on purchases and balance transfers for 15 months from the date of account opening. After that, 20.24% to 29.24% variable APR.
- 3% Cash Back at U.S. supermarkets on up to $6,000 per year in purchases, then 1%.
- 3% Cash Back on U.S. online retail purchases, on up to $6,000 per year, then 1%.
- 3% Cash Back at U.S. gas stations, on up to $6,000 per year, then 1%.
- Cash back is received in the form of Reward Dollars that can be redeemed as a statement credit or at Amazon.com checkout.
- Thinking about getting the Disney Bundle which can include Disney+, Hulu, and ESPN+? Your decision made easy with $7/month back in the form of a statement credit after you spend $9.99 or more each month on an eligible subscription (subject to auto renewal) with your Blue Cash Everyday® Card. Enrollment required.
- Apply with confidence. Know if you’re approved for a Card with no impact to your credit score. If you’re approved and you choose to accept this Card, your credit score may be impacted.
- Terms Apply.
Balance transfer fee
Either $5 or 3% of the amount of each transfer, whichever is greater.
Foreign transaction fee
2.7% of each transaction after conversion to US dollars
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.
