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Affirm: What It Is and How It Works

Affirm makes online shopping simple, but is it as good as it sounds?

Justin Cupler

Contributing Writer at Tally

May 28, 2021

Online shopping is booming and showing no signs of slowing down any time soon.  Research shows that e-commerce jumped 44% in 2020 — nearly three times the 15.1% jump we saw in 2019. 

Helping fuel this online sales boom are online point-of-sale financing companies like Afterpay and Affirm. These companies make it easier for online shoppers to buy big-ticket items online without resorting to credit cards. 

How does Affirm work and how is it different from a credit card? We'll cover all that and more below.

What is Affirm?

Affirm is an online financial institution that offers financing at the point of sale when shopping online, virtual credit cards and even savings accounts. 

Affirm is likely best known for its point-of-sale loans for online purchases. As you check out at a participating online retailer, you may see the Affirm payment method offered.  More recently, Affirm has expanded to a limited number of brick-and-mortar stores as well.

The company also offers a one-time-use virtual card that works like a virtual credit card. You can load it with your approved loan amount and use it with virtually any online vendor that accepts credit cards. You must use the card within 24 hours of Affirm issuing it. You can also use the virtual card in brick-and-mortar stores by adding it to your Apple or Google wallet — the retailer must accept Apple or Google payment.

Separate from its financing options is Affirm's FDIC-insured savings account, which offers a 0.65% annual percentage yield (APY) as of May 2021. There are no fees or minimum balance requirements. 

How Does Affirm Work?

Affirm has a relatively straightforward process for approving people for financing, and it all starts with prequalifying through a simple application process. 

If you're shopping at an online store that offers Affirm as a payment option, put all the items you need in your cart. When checking out, you'll see the Affirm payment option. Choose this option and enter the requested information — generally your phone number and the last four digits of your Social Security number — to see if you're pre-qualified. 

If you're pre-qualified, you'll receive one or more loan offers with estimated interest rates, monthly payments and total interest. Choose the payment terms you prefer and follow all the prompts to complete your transaction. You'll agree to the official loan terms once you complete the transaction. 

If you're not shopping at an online retailer that accepts Affirm, you can still apply through Click on the "Create account" link on the top-right portion of the page and enter the requested identifying information and the store you'd like to purchase from. The site will immediately tell you how much you qualify for. 

With a pre-qualified account, you can now go to any site that offers Affirm as a payment option, add items to your cart and choose Affirm as the payment option. Once you select Affirm, you'll approve the repayment terms — interest rate and monthly payment — during the checkout process. 

If you're planning to purchase from a retailer that doesn't accept Affirm financing, you can simply request a virtual card online or through the Affirm app. Affirm will present you with the estimated financing terms for the amount you load onto the card. Once you accept these terms, Affirm will give you a credit card number and all the other required information, and you use it as a credit card at checkout. After the merchant completes the transaction, Affirm will give you your final loan payment information.

Once you complete your purchase, you can simply make your fixed monthly installments online or through the Affirm app. Alternatively, you can set up an autopay so you never miss a payment. 

You can make your Affirm payments via checking account, debit card or by mailing a check. Some loans will even allow you to pay with a credit card. 

Will an Affirm Loan Affect My Credit Score?

When shopping for financing, every hard inquiry can lower your credit score. Affirm takes away this fear of a lower credit score by basing its pre-qualification on a soft credit check, which has no impact on your credit score. 

Once you’re approved for an Affirm account and you accept the loan amount, loan terms and repayment terms, Affirm may start reporting your account, payment history and balance to Experian. Affirm doesn't report to TransUnion or Equifax, nor does it report every Affirm loan to the credit bureau. So, you may not always see your account and payment history on your credit report

Do Affirm Loans Charge Fees? 

Yes and no. Yes, Affirm does typically charge interest fees, though some partner retailers offer 0% APR Affirm payment options for up to 24 months. While Affirm works similar to a credit card, it doesn't charge compound interest — charging interest on previously accumulated interest — like credit cards do. Instead, it only charges interest on the principal balance. 

That said, there are no other hidden fees. If you make a late payment, there is no late fee. Nor does Affirm charge any origination, account setup or annual fees.  

Pros of an Affirm Loan

Affirm has a lot to offer buyers who shop for large items online. Here are some of the benefits to an Affirm loan. 

No credit check

When shopping for financing, each hard credit inquiry can drop your credit score up to five points. If it takes a few tries to get the financing you want, those decreases can start making a significant impact. 

Since Affirm doesn’t require a hard credit check, you can apply for an Affirm payment plan without worrying about hurting your credit score.  

Flexible and upfront payment options

Depending on the merchant, Affirm may offer multiple payment options, including three, six or 12 months. Plus, the most important terms are laid out for you immediately upon applying, including the payment amount, interest rate and even the total interest you'll pay for each option. 

No fees

Hidden fees can create problems when managing your debt, and Affirm solves that by charging interest only — no prepayment fee, setup fee, origination fee, lender fee or even late fee. With all the fees nixed and Affirm charging interest only on the principal balance, you always know when you'll pay off your loan. 

0% interest options

Affirm negotiates its interest rates with each merchant it partners with, and some merchants hammer out attractive 0% financing options with the company. This means you can potentially finance that big purchase with no interest for anywhere from six to 24 months. 

Add to that no fees, and it's one of the most straightforward ways to borrow money. 

Virtual card option

Affirm has a wide range of partner merchants you can finance through, but there may be a product you can get from only one merchant that's not an Affirm partner. With Affirm's virtual card, you can still get Affirm's financing and buy from that merchant. Just check out as you usually would with a credit card but use the Affirm virtual card information instead. 

Cons of an Affirm Loan

Affirm has a lot to offer online shoppers, but it's not perfect. Here are a few drawbacks to Affirm financing. 

Wide range of interest rates between merchants

Because Affirm negotiates interest rates with each merchant separately, there may be significant interest rate differences between merchants. So, while you may have gotten 0% APR on that $500 television last week from one merchant, you may be surprised to get a 19% APR on a $2,000 couch from a different merchant. 

May not help build credit

Affirm picks and chooses what loans it reports to the credit bureaus. Worst of all, there is no official word on exactly what loans it will and will not report — it only references short-term 0% interest loans as examples of loans it won't report. 

If you're planning on using your Affirm loan as a way to build credit, you may be unpleasantly surprised to learn it's not even on your credit history. 

And even if your loan gets reported to the credit bureau, it's only to Experian, not TransUnion or Equifax. 

Limited loan amounts and terms

Affirm offers a maximum loan amount of $17,500 (a down payment may be required), meaning those really big-ticket items may remain out of reach. Plus, the longest term Affirm offers is 36 months, so your monthly payments could be quite high if you near that financing limit.  

Not available in all states

Affirm is available in all U.S. territories and almost all 50 states, but its banking partners don't offer loans in Iowa or West Virginia

Potential credit score reduction

When you take out any new loan or credit card, it may shorten your length of credit history, which accounts for 15% of your FICO credit score. The same goes for any Affirm loan that gets reported to the credit bureaus. 

Can't easily use it everywhere

While Affirm does have its virtual card option that adds some flexibility, you must request it and use it within 24 hours of receiving it. Plus, it's mostly only useful online. Affirm’s point-of-sale financing is spreading to brick-and-mortar retail locations, but it's still scarce.

Affirm: Flexible Financing With Some Caveats

How does affirm work? It offers attractive financing options, including 0% APR in some cases, with straightforward payment plans following a simple application process that has no impact on your credit score. If there is interest, Affirm doesn't compound its interest like credit cards do and gives you an exact payoff date. Also, you can apply for an Affirm loan and get pre-qualified without it impacting your credit score.

Plus, Affirm does all that with no fees — not even for late payments. 

Affirm allows you to take on large purchases in smaller, bite-sized chunks, but there are some caveats to it. The biggest issue is that making on-time payments to Affirm may not help improve your credit score, as Affirm doesn’t report every loan to the credit bureaus. Other downsides include its limited uses in brick-and-mortar stores, limited maximum loan terms of $17,500 and the inability to finance for longer than 36 months. 

If you're struggling with credit card debt and can't get approved for Affirm, a Tally line of credit1 might help you get your debts in line. The Tally line of credit often offers a lower interest rate than most credit cards, and you can use this line to pay them off. This may lower your monthly payments and accelerate your payoff. Plus, paying off your credit card debts may help improve your credit score.

1To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) Will be between 7.9% - 25.9% per year, and will be based on your credit history. The APR will vary with the market based on the Prime Rate.