The finance company Affirm announced on Thursday that it will soon offer a debit card to consumers that will enable them to make payments on any purchase at any retailer.
But consumers should be careful to read the fine print before applying.
Since 2012, Affirm has been offering loans on the point of sale or installments on select retailers’ websites, including Casper, Peloton, Walmart and thousands of others. They buy now, pay later (BNPL) financing options so that customers can pay off their purchases at select retailers on a monthly basis, sometimes at an interest rate of 0%, even if it depends on the individual and the retailer. It is often advertised as a cheaper alternative to credit cards.
The new Affirm Card takes this system a step further. Although not all of the details have been disclosed, consumers will essentially be able to link the card to their existing bank account to pay in full for purchases, such as a regular debit card, or monthly at any retailer, online or in-store. Affirm says the installments are interest-free for ‘qualifying’ purchases, but did not specify what they include.
It has also not yet been specified which financial company issued the cards.
If the pay-over-time option sounds a lot like a credit card or line of credit, it’s because it’s a lot like one, says Bank of America analyst Ted Rossman. Affirm essentially combines a debit card with a financing plan similar to a credit card, but especially without credit card protection or reward points, he says.
The most important appeal of the debit card is that it is likely to streamline the checkout process: cardholders can use the card all the time for all their purchases, rather than filling out a separate application for each purchase, just like the practice now. And some consumers may benefit from the 0% financing, Rossman says.
Others may also consider it a more responsible way to take out debt than a credit card, says Rossman, as the interest rate and repayment cycle are fixed: consumers know in advance exactly how much they owe, when they owe it and how many payments they will make. make. On the other hand, credit card debt is open.
“Psychologically, it feels better,” Rossman says, blaming him in this way. “For some people, it really works. It just depends on the conditions you get.”
Always read the fine print
While Confirmation and similar services have been around for years, they exploded in popularity during the pandemic, Rossman says. About 40% of consumers have used a BNPL service at least once, according to a recent survey by Reuters.
But consumers need to be careful when using any BNPL product, including the debit card, Rossman says. Although they advertise transparency and low, interest-free monthly payments, not everyone qualifies for 0% APR on every confirmed loan, and not every retailer offers it.
“The fine print is that if you do not get one of these 0% promotions, and it is very retailer specific, then they pay you 10 to 30%,” he says. “I think a lot of this is hidden in, ‘Oh, it’s just $ 50 a month.’ ‘
Since the average credit card APR is currently 15.99% per bank rate, consumers may end up spending more via the installment plan, depending on the APR they qualify for.
When the total price, including interest, is shown in monthly installments like Affirm, it can make a product look more affordable than it actually is, Rossman says. Paying $ 45.15 for 12 months may seem better than paying 15% interest for a year on a $ 500 purchase, but it ultimately costs the same.
“Confirmation does all the things it needs to do to make the terms clear, but I think the average person just doesn’t get it,” Rossman says.
Still, Rossman acknowledges that the loans and the upcoming debit card can be useful for people who use it to finance purchases responsibly and are wary of credit cards.
“There’s a place for this, but you have to be really careful,” he says. “It’s still debt. You’re still committing to repaying something over time.”
Those interested can join the company’s waiting list. The card is expected to be officially launched later this year.
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