How Does Affirm Make Money?

How does Affirm make money since it gives 0% POS loans to almost half of its borrowers? Is it the best buy-now-pay-later firm for you? Or is it another scam to lure you into financial chains?

Buying on credit to pay later (BNPL) is a concept that most Americans are familiar with. In fact, research shows that an average American household has around $6,000 in credit card debt. Credit cards allow you to make purchases now but pay later but with interest.

However, interest rates on these cards are pretty high, trapping many people to unending debt cycles. They lure you with enticing perks, but before you know it, you are in debts that you can’t get out of.

Luckily, there is a solution for this – Affirm loans. If you are tired of your ever-growing credit debt, Affirm is your best alternative. It allows you to continue spending on credit but at very low or zero interest rates.

Now, that is undoubtedly something everyone wants. But what exactly is Affirm? And how does Affirm make money to enable them to offer such low interest rates?

Well, first things first!

Affirm POS loans

What is Affirm?

Affirm is one of the oldest point-of-sale loan companies that give consumers a chance to buy what they want today but pay in the future. The firm, which was established in 2012, has since served more than 6.2 million consumers, offering credit for purchases at over 6,500 retailers and merchants.

With Affirm, you have access to POS loans to make your online or in-store purchases. It allows you to shop from their select partners such as Walmart, Amazon, Nike, Nordstrom, Best Buy, etc. Since it opened its doors, Affirm has proven to offer a new and better twist on consumer financing.

According to their website and reviews from users, you only pay what you agree to before the purchase. Nothing less, nothing more! In addition, Affirm purports to offer the most transparent, flexible, and convenient buy-now-pay-later model.

While it’s always good to pay for purchases upfront to avoid extra costs, some deals might be worth your while. For instance, if the interest for the POS loan is negligible or zero, why not enjoy the offer? In the long run, the extra cost doesn’t hurt your finances.

How does Affirm Work?

Different POS loans providers have different working strategies. However, the basic principles are the same.

Generally, when paying for your purchase, some merchants give you the option of spreading out the payments. If you choose that option, the purchase is approved in seconds, and you are free to get your products and pay later based on the agreed terms.

In essence, it’s not the merchant giving out the offer – their POS loans partner is. This is basically a short-term loan you’ve been given, paying a small deposit to pay the rest in small installments over a given period.

Typically, Affirm works the same way as a third-party lender. However, unlike most other POS loan givers, who offer the same interest rates at most of their partner merchants, Affirm APR varies with different merchants. This means that where you shop determines how much interest rate you end up paying.

Affirm loans interest rates range between 0% and 30% annually. And, since it’s an installment loan, the interest charged is fixed. This is unlike credit cards, which use compounded interests.

Also, the firm charges zero fees for the loan. Meaning, you are not required to pay any prepayment fee for early, late, or missed loan payment.

Affirm will, however, report any late or missed payments to the credit bureaus, which might hurt your credit score.

What is Affirm Payment?

The average size of Affirm loan is $750. However, you can still get up to $17,500, depending on your creditworthiness and the type of purchase.

When it comes to repaying the loan, Affirm usually has several plans, including three, six, and 12-month plans. However, you can also get a shorter or longer period, even up to 48 months, depending on the type and size of what you bought.

Before you complete the purchase, Affirm offers you all the available terms for you to choose from.

Most other POS loan lenders will automatically divide your payments into four installments. The first installment is the down payment made during the purchase.

How Does Affirm Make Money? Main Avenues

how affirm makes money

Affirm has two revenue streams—first, interest from the POS loans, and second, processing fees from partner merchants.

  • Interest Revenue

The first source of revenue for Affirm is interest charged on the POS loans. The firm charges consumers an APR of between 0% and 30%.

Generally, Affirm loans charge an average of 18% APR. However, around 43% of the borrowers will enjoy the 0% APR. These rates usually depend on the buyer’s credit score, as well as their negotiated terms with the merchant.

The company issues its loans via Celtic Bank, Affirm Loan Services, or Cross River Bank. This enables them to enjoy high loan volumes and attractive margin rates.

  • Merchant Fees

As we saw earlier, around 43% of consumers get POS loans at 0% APR. For such purchases, it’s the merchant who covers the transaction cost.

Merchant fees usually depend on several factors, including the anticipated sales, type of goods, and the purchase price. This fee is used to handle the payment process, allowing the seller to receive their payment within two days.

See related: Wedding Loans: How to Finance a Wedding

How to Use Affirm at Walmart

Using Affirm POS loans at Walmart is easy. When paying for your purchase online, select the method of payment as Affirm. This allows you to apply for a POS loan to complete your purchase.

If you are shopping in-store, follow these steps:

  • Visit affirm.com/walmart to apply for the POS loan
  • Select the payment plan that suits you
  • Scan the barcode at the register
  • Go back online and pay with Affirm

How to Buy Affirm Stock

If you want to invest in Affirm company shares, follow these simple steps:

  • Compare different share trading platforms like Robinhood, SoFi, moomoo, etc. You can use finder.com to find the best platform.
  • Open an account
  • Confirm your details
  • Find the stock by searching for the AFRM ticker symbol
  • Make your purchase
  • Monitor your investment

How to Get Affirm Virtual Card

Once you’ve qualified for a POS loan by Affirm, you can request a virtual Visa card through their website or the app. The card is loaded with the loan amount, and you can use it to shop at your favorite merchant- whether online or in-store.

However, you should note that the card will expire after 24 hours and can be used only once. So, make your purchases fast. Luckily, if you don’t use the card, you’ll be charged absolutely nothing.

How Long does Affirm take to Process Payment?

After the customer chooses to use Affirm as the desired payment method, the order’s payment is authorized. The store then finalizes the purchase and starts the shipment process.

Usually, the merchant will receive the payment after two business days. On the other hand, the customer will get updates on the installment payments and their due dates.

Related Resources

This article has been financially reviewed by Ben Heir, CFA Last Updated on October 20, 2021 .

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Author

Philip Horton

Philip Horton

Philip is the Head of Content for OnlineMoneyPage. He is responsible for researching and writing articles. He is also one of the co-founders of OnlineMoneyPage.

He is an experienced finance professional with a proven track record in the field of financial advisory. He has a proven history of success in clients’ personal finance planning. His core competencies include: Financial Planning & Analysis, Budgeting & Forecasting, Financial Modeling, Income Streams Improvement, and more.

Philip holds a MA degree in financial management and is a CFA and CFP charterholder.

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