If you’ve spent any time shopping online lately (who, me?), you’ve probably noticed something new at checkout. In addition to having to enter your email, phone number, Social Security number, blood type, and your eldest child’s name, a new prompt usually appears asking if you’d like to spread the payment for your purchase over a period of time, usually several moon. Since the outbreak, buy now, pay later (BNPL) services like Affirm, Klarna and Afterpay have appeared in virtual shopping carts everywhere, forcing the world to move all shopping online.
But the truth about BNPL services is more complicated: Of course, their appeal has never been stronger, especially at a time when household costs are skyrocketing and basic necessities like food are draining budgets from Montana to Mississippi. But consumer debt is also at an all-time high, making BNPL’s services even more dangerous for those of us who tend to be in debt.
How does Affirm or other popular BNPLs work? These services allow consumers to shop online and pay the balance in installments. If they sound too good to be true, to some people they are, says entrepreneur and finance professor Neha Kumar. She told PS BNPL services could be dangerous for those on a budget or already heavily in debt. (More Americans than ever are struggling to pay off loans and credit cards—total U.S. household debt hovers around $18 trillion—so if this sounds like you, you’re definitely not alone.)
On the one hand, BNPL services “provide flexibility and accessibility to consumers, which can empower consumers,” Kumar said. “On the other hand, the potential for abuse and the risk of debt accumulation are legitimate concerns.”
Before you jump all-in on what Kumar calls the “double-edged sword” of Affirm and other BNPL services, here are a few things to consider.
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Neha Kumar is a lecturer at UCLA Anderson School of Management, investment coach at Women’s Abundance Collective, and founder of Full Glass Wine Co.
How does Affirm work, and what are the pros and cons?
Whether you want to invest in an expensive new gadget, a luxurious new piece of furniture, or a $40 dog statue wearing a Santa hat, Affirm and similar services let you pay for it in installments so you don’t get hit with Too big of a hit to your bank account.
“The main value of BNPL is flexibility,” Kumar explains. “It allows consumers to pay in installments over time, making large purchases more manageable. This is especially helpful for necessities or emergencies.”
Some BNPLs offer desirable perks, such as zero interest rates and no late fees, which can come in handy in a pinch when you don’t have cash on hand. However, according to CNBC, Affirm’s interest rates can reach up to 30%, and less than half of Affirm’s loans have zero interest rates. Because of the differences between providers and loan types, Kumar stressed that BNPL services like Affirm are not necessarily the best option for all types of consumers, especially those who don’t like to read the fine print.
“Weighing is important [the pros] ” she said. Otherwise, BNPL services can make it easy for you to get into financial trouble quickly.
Will Affirm affect your credit score?
While Affirm doesn’t charge late fees like credit card companies do, late payments on BNPL services can still negatively impact your credit rating, just like late payments on a credit card. “Therefore, the repayment plan must be strictly controlled to maintain your financial position,” Kumar warns.
However, Kumar explained that overall, BNPL’s fee structure is generally more transparent than that of credit cards.
“BNPL services typically offer fixed payment plans with fixed terms, which can provide clarity and structure compared to credit cards that may have revolving balances and fluctuating interest rates,” she said. “Additionally, BNPL services generally do not involve interest if paid on time, whereas credit cards can accrue high interest if the balance is not paid in full each month.”
Is Affirm safe or a scam?
Kumar said BNPL services are not scams per se, but not all services are created equal. “Some companies are transparent and offer clear terms, which can be worthwhile for consumers who want flexibility,” she said. But there may still be other hidden fees or unfavorable terms that can cause financial strain.
“It’s critical to do your research and understand a particular service before using it,” Kumar said.
BNPL services such as Affirm, Klarna or Afterpay are no less secure than other online shopping platforms, credit cards or loans. But whether they’re a good choice for your online shopping really depends on your personality, shopping habits, and financial goals.
Ultimately, you should treat BNPL services like any other financial provider. “It’s important to evaluate your own financial situation – make sure you can afford to pay without affecting your budget,” says Kumar.
Emma Glassman-Hughes (she/her) is deputy editor of PS Balance. During her seven years as a reporter, her beat spanned all areas of lifestyle; she covered arts and culture for The Boston Globe, sex and relationships for Cosmopolitan, and The Ambrook Research Gastronomy, climate and agriculture.
