Finance company Affirm announced on Thursday that it will soon start offering a debit card to consumers that will allow them to make installment payments on any purchase to any merchant.
But consumers should be careful to read the fine print before requesting it.
Since 2012, Affirm has been offering one-off or one-off loans on certain retail websites, including Casper, Peloton, Walmart, and thousands more. These now purchase financing and postpay financing (BNPL) options allow customers to pay for their purchases at certain retailers in monthly installments, sometimes at a 0% interest rate, although it depends on the person 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 not all of the details have been disclosed, consumers will basically 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 distributor, online or – shop. He claims the fees are of no interest for “eligible” purchases, but did not specify what they include.
Nor has it yet specified which financial company is issuing the cards.
If the payment option over time sounds a lot like a credit card or a line of credit, it’s because it acts much like another, says Ted Rossman, an analyst at Bankrate. Affirm essentially combines a debit card with a financing plan similar to a credit card, though mostly without protections or reward points, he says.
The main drawback of the debit card is that it will probably streamline the exit process: Cardholders can use the card for all their purchases at all times, instead of filling out a separate application for each purchase. , as he practices now. And some consumers may benefit from 0% funding, Rossman says.
Others may also consider it a more responsible way to take on debt than a credit card, according to 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 do. In contrast, credit card debt is indefinite.
“Psychologically, it feels better,” Rossman says about taking on debts that way. “For some people it really works. It just depends on what terms you get.”
Always read the fine print
Although Affirm 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 should be careful when using any type of BNPL product, including the debit card, Rossman says. While they advertise transparency and low, interest-free monthly payments, not everyone meets the requirements to get a 0% APR on every Affirm loan and not all retailers offer it.
“The small print is that if you don’t get one of these 0% promotions and they’re very specific to merchants, they charge you 10% to 30%,” he says. “I think a lot of that is hidden in, ‘Oh, it’s only $ 50 a month.’
Given that the average credit card APR is currently 15.99% per bank fee, consumers could end up spending more through the Afirma installment plan, depending on the APR for which they meet the requirements.
Also, showing the total price, including interest, in monthly installments, as Affirm does, can make a product look more affordable than it really is, Rossman says. Making payments of $ 45.15 for 12 months may seem like a better deal than paying 15% interest for a year for a $ 500 purchase, but in the end they cost about the same.
“Affirm is doing everything it can to make the terms clear, but I think the average person doesn’t get it,” Rossman says.
Still, Rossman acknowledges that loans and the next debit card can be useful for people who use them to finance purchases responsibly and distrust credit cards.
“There’s a place for that, but you have to be careful,” he says. “It’s still debt. You’re still committing 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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