Going back a few years, but here I go:
It was January 2019 and I was full of that fresh start feeling. Browsing living room furniture online, I noticed a new payment option at checkout.
Intrigued, I used Affirm to purchase a new rug. That was my first experience with point-of-sale (POS) financing, a growing Fintech niche that offers installment payments at checkout. If you are an older Millennial like me, you may remember the layaway service that stores used to offer. POS financing is similar, only you get your purchase right away, then pay it off in bi-weekly or monthly payments.
While I like to try as many new personal finance products as possible for the sake of research, I found POS financing to be genuinely helpful. Over the past year and a half, I’ve used Affirm and Afterpay to purchase holiday gifts as well as things like back-to-school clothing for my kids. As someone who has never had much success with credit cards, I like that POS financing offers me a short-term loan with regular payments and low or zero interest charges. Unlike with credit cards, you can’t really dig yourself into a debt hole with Affirm and Afterpay.
In this article, I’ll explain the primary differences between Affirm and Afterpay and tell you what I like to use each POS financing option for.
How do Affirm and Afterpay compare?
|How it works||Select Affirm at checkout (when offered) or shop through the app. Choose the number of payments you want to make. The first payment is usually due the following month.||Select Afterpay at checkout (when offered) or shop through the app. Your first payment is due at the time of purchase with the remaining 3 installments due on a bi-weekly schedule.|
|Interest and fees||APR varies depending on your creditworthiness, the retailer you’re buying from, and your choice of term length. There are no additional fees.||Their motto is “pay in 4, interest free.” Late payments after the grace period will incur a fee.|
|Impact to credit||Counts as a “soft inquiry” on your credit report, so it doesn’t hurt your credit to get prequalified. Loan history and payment records appear on your credit report.||There is no credit check and your payment record won’t appear on your credit report.|
|Where to use it||Just about anywhere you shop online.||Just about anywhere you shop online.|
What is Affirm?
Affirm is a point-of-sale financing option that provides a personal loan for the amount of your purchase and a transparent, upfront breakdown of the total interest you’ll pay, if any. You can choose Affirm at checkout if offered by the merchant or create a virtual card through the app to use as payment.
Although point-of-sale financing is Affirm’s main focus, they also offer an FDIC-insured, interest-bearing savings account through the app.
It’s also important to note that Affirm will appear on your credit report and on-time payments could help you establish a positive credit history.
Affirm’s defining features are its 0% APR on select transactions and for select borrowers, as well as its one-month delay between purchase and the due date for the first payment.
What is Afterpay?
Afterpay is another point-of-sale financing option. The repayment plan always consists of four interest-free payments, the first one due at checkout, and the other three due every two weeks afterward.
It’s important to note that Afterpay will not appear on your credit report and you will not be charged any fees unless your payment is late. Borrowers who fall behind on their Afterpay payments will not be able to use the service again until they catch up.
The distinguishing feature of Afterpay is its consistent repayment plan, the fact that it’s interest-free, and the fact that they’re available to everyone.
How do Affirm and Afterpay affect my credit?
I pulled my credit report to check. Each time you use Affirm, it does appear on your credit report with your payment history. So if you’re trying to build or improve your credit, Affirm could be a good option.
Afterpay doesn’t appear on your credit report. Neither payment option counts as a “hard inquiry” on your credit report when you find out much you’re pre-approved to spend.
What can I purchase with Affirm and Afterpay?
The short answer is just about everything. I’ve primarily used them for clothing, beauty, and homeware purchases, but I plan to try them out for travel as well, once the world starts traveling again.
One important caveat here is that Afterpay only works with its partner merchants, whether you’re shopping online or through the Afterpay app. With the Affirm app, you can create a “virtual card” with a one-time credit card number, expiration date, and security code to make purchases from non-partner merchants.
I had a good experience using this virtual card option for my 2019 holiday gift purchases. I was also able to use the Affirm app to keep track of how much I spent on the holidays and I repaid the loans early as extra money (through gifts and work bonuses) came in. So far, I’ve only had the virtual card option fail one time, with a merchant that said it doesn’t accept this form of payment.
Affirm vs. Afterpay: payment alerts
Affirm gives you the option of setting up automatic payments or making a payment on the due date. Afterpay is set up to make automatic payments from the bank account you use for the first payment.
Both Affirm and Afterpay will send you reminders a few days before each payment is due to make sure you have enough funds in your bank account.
Affirm vs. Afterpay: security
Affirm protects your personal information with TLS, a cryptographic protocol, and stores your sensitive data with AES 128-bit or higher encryption.
Afterpay is a PCI DSS Level 1 certified compliant Service Provider organization, which means it adheres to requirements from the Payment Card Industry Security Standards Council to ensure the safe handling and storage of your sensitive data.
To use the Affirm and Afterpay apps, you must create a special four-digit login pin.
Affirm vs. Afterpay: using on the go
I recommend downloading the Affirm and/or Afterpay apps for the best experience. You can shop and make payments through the apps, check your balances, and schedule upcoming payment due dates at any time.
Who is Affirm best for?
I think Affirm is best for larger purchases, as well as borrowers with a high-enough credit score to qualify for the 0% APR when available. Because payments are made on a monthly basis (instead of bi-weekly like Afterpay), it can be easier to repay a larger amount, such as a furniture purchase, and still not pay much (or any interest).
Who is Afterpay best for?
I like Afterpay for smaller purchases because no interest is charged, it’s a convenient way to pay for online purchases. Why not keep the cash in your bank account for other expenses or to earn interest if you don’t have to pay the total amount upfront?
Affirm vs. Afterpay pros
- The virtual card – Affirm expands the number of places you can use it to pay for purchases. Also, if you end up returning something, the amount is credited back to the virtual card and deducted from your total loan balance.
- 0% APR – If you can qualify for 0% APR on certain purchases, it’s a great option for financing a larger purchase, such as a mattress or a new couch.
- Monthly payments – This repayment schedule mimics a traditional personal loan, making payments easy to budget for.
- 0% APR – Afterpay offers 0% APR on every purchase, to everyone regardless of credit history. This makes it a great alternative to credit cards if you usually carry a balance.
- No impact on credit – Afterpay is a good option if you don’t want it to appear on your credit report.
- Biweekly – Pay off the loan faster with Afterpay’s biweekly repayment schedule.
Affirm vs. Afterpay cons
- Varying APR – If you don’t qualify for a 0% APR, you will pay some interest on your loan.
- Impact on credit – Every time you use Affirm, it will show up on your credit report.
- Limited use – Without a virtual card option, you can only use Afterpay with partner merchants.
- First payment – With Afterpay, the first payment is due at purchase.
What are the reasons not to use POS financing?
While Affirm and Afterpay are both convenient, accessible, and affordable financing options, POS financing may not be the best choice for everyone.
The obvious counterargument would be to save up in installments before making a purchase instead of making installment payments after the fact. In my current season of life, with small children who constantly outgrow their clothes and shoes, I find it easier to use POS financing to keep these purchases within my budget than to save up.
However, I can see how online shopping could become addictive, particularly if you receive a lot of time-sensitive sale offers in your email. If overspending is an issue for you, it probably would be better to slow down and save up rather than using POS financing.
Also, when you agree to repayment terms, you’re committing a certain amount of your future income. If you’re concerned about losing your job in the short term, or your monthly income is unpredictable (such as for freelancers), POS financing may not be the best option, especially for larger purchases.
POS financing can be a great tool as long as your monthly income doesn’t vary too much and you’re not prone to overspending and/or impulse purchases online. Personally, I plan to keep these tools in my personal finance toolbox, especially for holiday spending and larger purchases.