Finance company Affirm announced on Thursday that it will soon start offering consumers a debit card that will allow them to make installment payments for any purchase from any merchant.
But consumers should be careful to read the small footprint before applying.
Since 2012, Affirm has offered point-of-sale or installment loans on the websites of selected retailers, including Casper, Peloton, Walmart and thousands of others. These financing options buy now, pay later (BNPL) allow customers to pay for their purchases at certain retailers in monthly installments, sometimes at an interest rate of 0%, although this depends on the individual and the retailer. . They are often promoted as a less expensive alternative to credit cards.
The new Afirma card takes this system one step further. Although not all details have been disclosed, consumers will essentially be able to connect the card to their existing bank account to pay in full for purchases, such as a typical debit card, or in monthly installments at any retailer, online or in – store. Affirm says the rates are interest-free for “eligible” purchases, but did not specify what they include.
He also did not specify yet which financial firm issues the cards.
If the timely payment option sounds a lot like a credit card or a line of credit, it’s because it acts a lot like one, says Ted Rossman, an analyst at Bankrate. Affirm essentially combines a debit card with a financing plan similar to a credit card, though, in particular, without credit card protection or reward points, he says.
The main appeal of the debit card is that it will probably simplify the check-out process: cardholders can use the card for all their purchases at all times, rather than filling out a separate application for each purchase as it is now practiced. And some consumers could benefit from 0% funding, says Rossman.
Others might also think it’s a more responsible way to take out debt than a credit card, says Rossman, because the interest rate and repayment cycle are fixed: consumers know exactly how much they owe, when they owe it, and how many payments they will make. Thanks to the credit card, on the other hand, it is open.
“Psychologically, he feels better,” says Rossman, who takes on debt this way. “For some people it really works. It just depends on what terms you have.”
Always read the small print
While Affirm and similar services have been around for years, they exploded in popularity during the pandemic, says Rossman. 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 kind of BNPL product, including a debit card, says Rossman. While it promotes transparency and low interest-free monthly payments, not everyone qualifies for 0% APR on every Affirm loan and not every retailer offers it.
“The small print is that if you don’t receive one of these 0% promotions, and they are very specific to the retailer, then you charge a fee of 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 APR of the credit card is currently 15.99%, on Bankrate, consumers could end up spending more through the Affirm failure plan, depending on the APR for which they qualify.
In addition, displaying the total price, including interest, in monthly installments, as Affirm does, can make a product seem more affordable than it actually is, says Rossman. Making payments of $ 45.15 for 12 months may seem like a better deal than paying a 15% interest for a year on a $ 500 purchase, but in the end it costs about the same.
“Affirm does all the things it needs to do to clarify the terms, but I think an ordinary person just doesn’t get it,” says Rossman.
However, Rossman acknowledges that loans and future debit cards can be useful for people who use them to responsibly finance purchases and are afraid of credit cards.
“There’s a place for that, but you have to be very careful,” he says. “It’s still debt. You still make a commitment to pay something back in 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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