Affirm Loans Offer a Credit Card Alternative — but They’re Every Bit as Risky

How do you make large purchases online if you don’t have a credit card?

There’s a solution for that, and it’s designed to help the underbanked or bank-skeptic buy the stuff they just can’t live without: plane tickets, mattresses and watches among them.

Gaby Del Valle introduces us to Affirm in a recent piece at The Outline. In it, she explains the company’s model of offering financing for purchases made on the websites of its partner retailers.

The service takes pride in its upfront fees and ease of use. But its selection of partners gives the impression that paying high interest on less-than-essential items is OK.

Here’s How Affirm Works

Browse sofas on Wayfair, mattresses from Casper or flights through Orbitz, and you’ll see an offer to finance that purchase through Affirm when you check out.

Affirm explains that you’ll pay between 10% and 30% interest for your purchase based on your credit. But this soft credit check just verifies your identity and determines your eligibility for financing, unlike a hard check that affects your credit score.

That’s because Affirm was designed for people who have short credit histories and may not be able to get a credit card with favorable limits and interest or for people who don’t have credit histories at all.

Affirm reports payment history on its loans to Experian and plans to relay that information to other bureaus in the future, according to its FAQ. By reporting your Affirm loan to the credit bureaus, your three-, six- or 12-month loan can help you can build credit — at a cost. Affirm says the average interest rate it offers is 21%, while The Outline notes that credit cards have an average APR of 17%.

Choose the $999 McKinley Chair from Joybird (it’s the grown-up version of IKEA’s $99 Poang, if you ask this furniture coveter), and Affirm offers “easy monthly payments” of $55.50 per month for 18 month — with zero interest. The pop-up box advertises interest rates of 0 to 30%.  

But at least with a piece of furniture we can hope you’ll keep it for many years, and sell it for a couple hundred if you decide to part ways.

Can you imagine financing a flight for an interest rate that creeps very close to what you might see for a payday loan?

Book a spontaneous flight to Tokyo this fall, and that $1,200 splurge with one-year financing through Affirm will turn into $1,440 once you consider 20% interest. Paying $120 per month doesn’t seem like too much of a stretch to cover that cost, but doing so over 12 months means the trip will just be a memory by the time you’re done paying for it.

Do you want to spend 12 months paying for a coach flight you already took?

Affirm, for all it advertises about being transparent and honest and serving the underbanked, also exists to serve those who want to be credit card-free.

“They’re really chasing this market of millennials who are afraid of debt and afraid of credit cards because they grew up during and after the recession and they saw people’s houses get taken away, and people run up these insane credit card bills, so these people are afraid of debt and afraid of credit,” Del Valle said in the site’s daily podcast World Dispatch. “And Affirm is basically rebranding debt and credit to make it seem ethical and friendly.”

What’s Wrong With Financing a Couch?

Financing large purchases at the time of payment isn’t new. Furniture stores do it. Mattress stores do it. Jewelry stores do it.

But promotions for those stores’ financing often tout low- or no-interest financing, hoping you’ll decide to spend more and spread out your payments.  

The trouble with Affirm, The Outline notes, isn’t that it’s providing an alternative to credit cards, albeit for a price. The real problem is that Affirm is being offered alongside items that may not be in your best interest to finance in the first place. If you need to finance a new mattress through Affirm by paying 20% interest, shouldn’t you be sleeping on an air mattress or checking out the sales at the mattress store down the street?

Affirm claims it’s up to the consumer to determine the value of what they’re financing. The company is said to be finalizing an agreement to serve Walmart’s online customers.

Meanwhile, PayPal offers a similar setup for online shoppers. It offers an interest rate of 20% on its loans to users, but it doesn’t charge interest if you pay in full within six months.

Lisa Rowan is a writer and producer at The Penny Hoarder.