Finance company Affirm announced on Thursday that it will soon begin offering a debit card to consumers that will allow them to make installments on every purchase from any merchant.
But consumers should be careful about reading the fine print before applying.
Since 2012, Affirm has offered outlets or installment loans on select retailer websites, including Casper, Peloton, Walmart, and thousands of others. These buy now, pay later (BNPL) financing options allow customers to pay off their purchases from selected retailers in monthly installments, sometimes at a 0% interest rate, although this depends on the individual and the retailer. They are often advertised as a cheaper alternative to credit cards.
The new Affirm Card goes a step further in this system. While not all the details have been disclosed, consumers will essentially be able to link the card to their existing bank account to either pay in full for purchases, such as a regular debit card, or via monthly installments at any retailer, online or in-store. Affirm says the installments are interest-free on “eligible” purchases, but did not specify what they include.
It also has not yet specified which financial firm issues the cards.
If the pay-over-time option is a lot like a credit card or credit limit, it’s because it looks a lot like a credit card, says Ted Rossman, an analyst at Bankrate. Affirm essentially combines a debit card with a financing plan that’s similar to a credit card, but notably without credit card protection or rewards points, he says.
The main appeal of the debit card is that it will likely streamline the checkout process: cardholders may always be able to use the card for all of their purchases, rather than having to fill out a separate application for each purchase, like practice now. And some consumers can take advantage of the 0% funding, Rossman says.
Others may also find it a more responsible way of taking on debt than a credit card, Rossman says, since the interest rate and repayment cycle are fixed: Consumers know exactly how much they owe, when they will owe it, and how many payments in advance. they will make. Credit card debt, on the other hand, is indefinite.
“Psychologically it feels better,” Rossman says of going into debt this way. “It really works for some people. It just depends on what terms you get.”
Always read the fine print
While Affirm and similar services have been around for years, they’ve skyrocketed in popularity during the pandemic, Rossman says. According to a recent Reuters survey, about 40% of consumers have used a BNPL service at least once.
But consumers should be careful when using any kind of BNPL product, including the debit card, Rossman says. While they promote transparency and low interest-free monthly payments, not everyone qualifies for 0% APR on every Affirm loan, and not every retailer offers them.
“The fine print is that if you don’t get any of these 0% promotions, which are very retailer specific, they’ll charge you 10% to 30%,” he says. “I think a lot of this is hidden in, ‘Oh, it’s only $ 50 a month.'”
Since the average APR per credit card is currently 15.99%, per bank rate, consumers can end up spending more through the Affirm installment plan depending on the APR they qualify for.
In addition, displaying the total price, including interest, in monthly installments, as Affirm does, can make a product appear cheaper than it actually is, Rossman says. Payments of $ 45.15 for 12 months may seem like a better deal than paying 15% interest on a $ 500 purchase for a year, but they end up costing about the same.
“Affirm is doing whatever it takes to get the terms clear, but I think the average person just doesn’t understand,” Rossman says.
Still, Rossman recognizes that the loans and the upcoming debit card could be helpful to people who use them to fund purchases responsibly and are wary of credit cards.
“There’s a place for this, but you have to be very careful,” he says. It’s still a debt. You still commit to pay back something over time. ‘
Interested consumers can join the company’s waiting list. The card is expected to be officially launched later this year.
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