Financial firm Affirm announced Thursday that it will soon begin offering consumers a debit card that will allow them to make installment payments on any purchase at any store.
But consumers should be careful to read the fine print before signing up.
Since 2012, Affirm has offered loans at points of sale or in installments on websites of selected retailers, including Casper, Peloton, Walmart and thousands of others. These buy now, pay later (BNPL) financing options allow customers to pay for their purchases at selected retailers in monthly installments, sometimes with a 0% interest rate, although this depends on the individual and the retailer. They are often advertised as a less expensive alternative to credit cards.
The new Affirm card takes this system a step further. Although all details have not been released, essentially, consumers will be able to link the card to their existing bank account to pay in full for purchases, such as a typical debit card, or through monthly installments at any retailer, online or in-store . Affirm says the installments have no interest for “eligible” purchases, but did not specify what to include.
It also did not specify which financial company is issuing the cards.
If the payment option on time looks a lot like a credit card or line of credit, it’s because it acts a lot like one, says Ted Rossman, an analyst at Bankrate. To claim is essentially to combine a debit card with a credit card-like financing plan, although notably without credit card protections or reward points, he says.
The main appeal of the debit card is that it will probably speed up the checkout process: cardholders can use the card for all their purchases all the time, instead of filling out a separate form for each purchase, as they practice now . And some consumers can benefit from 0% financing, says Rossman.
Others may also consider it a more responsible way of borrowing than a credit card, says Rossman, since the interest rate and return cycle are fixed: consumers know in advance exactly how much they owe, when they owe and when. how many payments they will make. Credit card debt, on the other hand, is unlimited.
“Psychologically, it looks better,” says Rossman of taking on debt that way. “For some people it really works. It just depends on the terms you get.”
Always read the fine print
Although Affirm and similar services have been around for years, its popularity exploded during the pandemic, says Rossman. About 40% of consumers have used the BNPL service at least once, according to a recent survey by Reuters.
But consumers should be careful when using any type of BNPL product, including a debit card, says Rossman. While they advertise transparency and low interest-free monthly payments, not everyone qualifies for 0% APR on each Affirm loan, and not every retailer offers it.
“The good impression is that if you don’t get one of these 0% promotions, and these are very specific to the retailer, they charge 10% to 30%,” he says. “I think a lot of it is hidden in ‘Oh, it’s only $ 50 a month.'”
Considering that the average APR of the credit card is currently 15.99%, by Bankrate, consumers may end up spending more through the Affirm installment plan, depending on the APR to which they qualify.
In addition, displaying the total price, including interest, in monthly installments, as Affirm does, can make a product appear more affordable than it really is, says Rossman. Making payments of $ 45.15 for 12 months may seem like a better deal than paying 15% interest for a year on a $ 500 purchase, but in the end it costs almost the same.
“Affirm is doing everything necessary to make the terms clear, but I think the average person just doesn’t understand,” says Rossman.
Still, Rossman recognizes that loans and the next debit card can be useful for people who use them to finance purchases responsibly and are cautious with credit cards.
“There is a place for that, but you need to be very careful,” he says. “It’s still debt. You’re still committing yourself to paying 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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