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

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, and then agree to pay off the rest in installments over a few weeks or months.

It’s not actually the merchant offering you this credit, but a third-party lender the merchant is allowing on its website (and paying a service charge). 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, however, isn’t one of them.

Payments Are Automatically Split Into 4 Installments With Affirm

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, allows 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 Credit Limits

Affirm doesn’t have a minimum or maximum credit limit, per se. Though there is an upper limit of $17,500 on purchases as mentioned, your individual credit limit is determined by things 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

What this all means is that it’s possible to be approved for more than one Affirm loan at a time, with more than one merchant. Affirm also mentions that it takes current economic conditions into account so whether or not you’re approved and your credit limit can depend on things beyond your financial history.

How to Increase Credit Limits

If you’re initially approved for a loan with Affirm but were hoping for a higher credit limit, there are a couple of things you may be able to do to improve it.

First, you can pay off your current Affirm loan on schedule. As mentioned, Affirm looks at how you’re managing existing loans when approving you for new buy now, pay later 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’re applying 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. Specifically, Affirm says it will not report a loan to the credit bureau Experian if the loan is 0% and four biweekly payments, or 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. Again, qualification is based on your overall credit history, your history with Affirm, and current economic conditions. But generally, the better your credit, the easier it may be to get approved for a point of sale installment loan.

Does Affirm Charge Interest?

If you read the fine print, Affirm does not guarantee that you’ll qualify for 0% interest financing. Depending on your credit and eligibility, your APR can end up being 0%, or 10% to 30%. Down payment may also be required for some purchases.

So how do Affirm’s interest rates compare to the average credit APR? The average credit card’s APR was 16.44% for all accounts that assessed interest, as of November 2021, according to the most recent data from the Federal Reserve. So it’s possible that Affirm could be a less expensive option, assuming 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.

You may also be wondering whether you can pay an Affirm loan off early to save money on interest. The answer is yes. And in case you’re curious about whether Affirm charges a prepayment penalty for doing so, the answer is no.

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 E-Commerce
• 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’d 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’d like to use Affirm in-store, you can do so with an Affirm virtual card. When you’re approved for buy now, pay later 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 or Google 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’d 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 that’s 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 only issues a partial refund or issues 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’d 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’d 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?

That’s an important question. 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. Some of Affirm’s clients include Delta Airlines Vacations, Walmart, Bonobos, and Peloton. Consumers can pick the payment option that works for their budget—from 4 interest-free payments every 2 weeks to monthly installments.