How Does Affirm Work?

Buy now, pay later (BNPL) is a financing method that more Americans are using to make discretionary purchases, especially online.

In fact, at least 39% of consumers have tried this option, also known as a point-of-sale installment loan, at least once, according to a 2021 survey from The Strawhecker Group. One of the biggest players in this fast-growing financing field is Affirm (AFRM).

Established in 2012 by CEO Max Levchin, who co-founded the company that eventually became PayPal, Affirm trades on Nasdaq—it went public in January 2021—and has a market capitalization of $10.6 billion.

Affirm purports to offer a new spin on consumer financing: helping people afford to buy the things they want without getting into unmanageable debt. Here’s a closer look at how Affirm works and the pros and cons of its short-term installment loan arrangements.

How Does Affirm Work?

Every buy now, pay later provider works a little differently, though the basic premise is the same: At the checkout point, under payment options, you are offered the option to spread out your payments for whatever you’re purchasing. You apply and are usually approved in seconds for what’s basically a short-term loan. You make a small down payment, then agree to pay off the rest in installments over a few weeks or months.

The way that BNPL programs like Affirm work, the merchant is not offering you this credit. Instead, a third-party lender that has partnered with the merchant is providing the credit. Affirm is one of these third-party lenders.

Affirm is designed for financing purchases when shopping with partner merchants. Though some platforms that offer short-term installment loans also offer bill payment services or money transfer services, Affirm isn’t one of them.

Payments Are Not Automatically Split into 4 Installments

With some point-of-sale loans, your payments are automatically divided into four installments. Specifically, that means an initial down payment at the time of purchase, followed by three additional installments.

Affirm, on the other hand, works by allowing you to choose your payment option. So, for example, you may be able to split purchases up into three payments, six payments, or 12 payments.

Affirm doesn’t state a minimum purchase size on its website for consumers. Instead, it’s up to merchants that partner with Affirm to set minimum purchase guidelines. Affirm’s business website mentions a minimum of $50.

Affirm’s website mentions a maximum purchase of $17,500. But again, the actual amount you’re able to finance with a point-of-sale installment loan from Affirm can vary based on the merchant.

Affirm Credit Limits

Affirm generally leaves it up to merchants to set minimum or maximum credit limits. Though there is an upper limit of $17,500 on purchases, your individual credit limit is determined by factors like:

• Your credit history
• Your payment history with Affirm
• How long you’ve had an account with Affirm
• The interest rate offered by the merchant where you’re applying

You can be approved for more than one Affirm loan with more than one merchant.

How to Increase Credit Limits

If you’re initially approved for a loan with Affirm but wanted a higher credit limit, there are a couple of steps to take to try to achieve a higher limit.

First, you can pay off your current Affirm loan on schedule. Affirm looks at how you’re managing existing loans when approving you for new BNPL arrangements.

Next, you can work on boosting your credit score overall. Things like paying bills on time, reducing debt balances, and limiting how often you apply for new credit could work in your favor for getting a higher credit limit with Affirm or any other lender.

Does Using Affirm Hurt Your Credit Score?

Anytime you apply for financing, it’s important to consider how it may impact your credit history. There are two components to consider: the credit check and how your account activity is reported to the credit bureaus.

Affirm does check your credit, but it’s a soft pull rather than a hard pull. That means you can get prequalified for Affirm financing without impacting your credit, and there’s no obligation to use buy now, pay later financing until you actually make a purchase.

Most BNPL services don’t report to credit bureaus. Affirm says it will not report a loan to the credit bureau Experian if the loan is 0% and four biweekly payments, or if you were only offered one option at the application of a three-month payment term with 0%. It may report longer-term or other loans.

What Credit Score Do You Need to Use Affirm?

Affirm doesn’t specify what credit score you’ll need to qualify. Qualification is based on your overall credit history, your history with Affirm, and current economic conditions.

Generally, the better your credit, the easier it will be to get approved for a point-of-sale installment loan.

Does Affirm Charge Interest?

Affirm generally offers 0% interest financing, but there is a chance that you may have to pay a higher rate. Depending on your credit and eligibility, your annual percentage rate (APR) can end up being 0%, or 10% to 30%. A down payment may also be required for some purchases.

How do Affirm’s interest rates compare to credit card rates? The average credit card’s APR was 19.07% for credit card accounts as of November 2022, according to Federal Reserve data. Affirm could thus be a less expensive option if you qualify for 0% financing. But if not, then it’s possible that you could end up with a higher interest rate compared to what you might pay with a credit card.

Affirm Stores and Retailers: Who Accepts Affirm?

Affirm works with thousands of retailers and merchants, including stores in the apparel, travel, electronics, home, and fitness categories. Some of the brands that allow you to use Affirm point-of-sale installment loans at checkout include:

• Adidas
• Best Buy
• Delta Vacations
• Expedia Hotels
• CheapOair
• Peloton
• Walmart.com
• Pottery Barn
• Williams Sonoma

How to Use Affirm Online

You can use Affirm to shop online or through the mobile app. Specifically, you can use Affirm to make purchases:

• At partner store websites
• Through Affirm.com
• Inside the Affirm mobile app

You would simply shop for the items you want, then add them to your cart. When you’re ready to pay, you choose Affirm as your payment option at checkout. Affirm then allows you to choose your payment terms and complete the purchase.

How to Use Affirm in Stores

If you would like to use Affirm in-store, you can do so with an Affirm virtual card. When you’re approved for BNPL with Affirm, you can choose to have the amount loaded onto a virtual Visa card that works just like a credit or debit card for making purchases. To use your card in-store, you can access it from the Affirm app or link it to Apple Pay.

How Returns Work When Using Affirm

If you have an issue with a purchase or need to return an item, Affirm advises customers to contact the merchant directly. You would then have to follow the store’s policies for returns.

In terms of what happens to your Affirm loan after making a return, there are a few possibilities. For instance, Affirm can cancel your loan completely if the merchant has finalized the return. If the amount returned to you is more than the loan, then Affirm can return this overpayment to you.

But the result may be different if the merchant issues either a partial refund or a store credit in lieu of a refund. In that case, you would still be responsible for paying any remaining balance due on your Affirm loan, even if you’ve returned the item you purchased.

If you’re not able to resolve a return or refund issue with a merchant, you can initiate a dispute with Affirm. If you win the dispute with the merchant, Affirm will refund the full amount of the purchase along with any interest paid. But if the dispute goes in favor of the merchant, you would still be responsible for paying your Affirm loan in full.

How to Pay Affirm

You can make payments online at Affirm.com or through the Affirm mobile app. With either one, you would simply navigate to the purchase you want to make a payment toward, add a payment amount and due date, then select a payment method to schedule it.

What Can I Use to Pay Affirm?

Currently, Affirm accepts these payment methods:

• Debit card
• Checking account
• Paper check by mail

For some purchases, you can make down payments or installment payments with a credit card, but this depends on the merchant.

The Bottom Line

Affirm is a buy now, pay later (BNPL) service that allows merchants to provide flexible payment plans for their customers without hidden fees or gimmicks. Consumers can pick the payment option that works for their budget—from four interest-free payments every two weeks to monthly installments. Consider all the risks before you use this type of financing.