February 8, 2017

New Alternative to Credit Cards: Affirm


Many people enjoy the flexibility and credit-building potential that comes with having a credit card. You can prove that you’re a worthy borrower, pay for a purchase after you buy the product and – if you’re getting paid down the line – pay off the purchases at once or in installments with interest.

Pay Over Time

Using a line of credit isn't always going to be the best purchasing option, especially if you are just starting out with your finances.

For instance, making the minimum payment on a credit card is very risky; the money you owe can easily begin to snowball. But what about those people who are responsible with their credit and looking for a different way?

For a lot of people, using credit as a responsible tool is a great way to improve your credit history and score for a big purchase down the line. Having good credit can influence many parts of your life:

  • Buying a home
  • Renting an apartment
  • Finding a job
  • Securing a car loan

Most people will just take out a credit card in order to build up their credit history, but there are plenty of downsides that come with that.

What if there were a different way to make purchases using installments without the drawbacks of plastic?

What's Wrong with Credit Cards

Many millennials have a mistrust of credit cards, and some of those feelings are not misguided. Credit cards can be a good way to build up a credit history if they are used responsibly, but that doesn't mean they're for everyone. Some of the drawbacks to plastic include:

  • Theft
  • Fraud
  • Lost cards
  • Hidden fees
  • Compounding interest
  • Variable interest rates
  • Lack of transparency

Going with a credit card means that your interest rate can change without you being aware. You might start to accrue annual fees that hit your statement. Now you are paying for the ability to have a card that offsets any bonuses you might get for signing up for the card in the first place.

Affirm Is a New Alternative

Affirm is a start-up that seeks to offer many of the benefits that come with credit cards while eschewing the drawbacks that come with a piece of plastic. The idea is that they partner with retailers so that you can pay for your purchases with credit, but a new kind of credit. They show you the rate, loan and monthly payment amounts and length of time to pay off your purchase upfront. Some of the goals the Affirm app looks to achieve include:

  • Transparency
  • Fixed rates
  • Clean interface
  • Build your credit
  • No hidden fees
  • Security
  • Pay over time in fixed monthly amounts

If you want to make a purchase, you would choose to pay with Affirm instead of a piece of plastic. Using a fixed rate of interest and amount of time, you will know how many payments it will take to repay the loan, and what you're paying for your purchase to the penny. It is a simple, friendly and clean alternative to using a credit card.

How It Works

You can use Affirm to make purchases with selected merchants. The company partners with nearly 900 retailers and is growing. Some of these include:

  • Motorola
  • Tradesy
  • Expedia
  • Wayfair
  • Reverb

Using your credit history and other information, Affirm can make a real-time decision, and if approved, will show you the interest rate for your loan. You will then remain in control as you decide the length of the loan or size of payments you would like to make. Just remember that the longer it takes you to repay (i.e., smaller monthly amount), the more you will pay in the long run.

The goal is to always have the person getting the loan be in control of the repayment amount and schedule. Affirm does away with the opaqueness and hidden fees of credit cards while still allowing you to make monthly installments and build your credit.

Who It's For

Affirm is a good option for people who are looking for a new way to build their credit history and score, or anyone looking to pay over time for a larger purchase. Making your daily purchases using a line of credit is not always the best idea, especially if you carry a balance. It is very easy for that debt to get out of control and you find yourself owing a lot more money than you borrowed. Remember, whether you're using a credit card or Affirm, this is a loan that you have to repay with interest. Some of the people who will benefit most from Affirm are:

  • Students
  • Young professionals
  • People looking to build a credit history
  • People who dislike credit cards
  • People with a big purchase on the horizon
  • People who need help with budgeting the repayment of larger purchases

If you want to make a larger purchase through Joybird, Motorola, Tradesy or more, and you will be able to pay back everything in full, then Affirm is a great new option for building your credit history. They don't have tons of vendors at the moment, but they are constantly adding more. Affirm could be good for you if, for example, you are filling your new apartment with furniture and you don't like the hidden fees that come with credit cards.

Bottom Line

All in all, Affirm provides a new and unique way for building a history of credit for people who are turned off by the downsides that come with credit cards. Their commitment to transparency and always leaving the user in control are huge bonuses that are helped by their clean interface and usability.

It is important to remember that using Affirm is still the same as having a loan that you need to repay. However, if you have a big purchase coming up and Affirm partners with a vender that you want to use, it can be a new and compelling option. Especially if you are young, starting out and want a new way to have your credit history help you for a future purchase down the line. It is definitely a worthy alternative to credit cards.

More from CreditDonkey:


Avoid the Minimum Payment Trap

How to Pay Off Credit Cards

How to Pay Off Credit Cards

How to Invest Money

How to Invest Money

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