Affirm’s new mobile app lets you borrow money for almost any online purchase

Lending startup Affirm, founded by PayPal and Yelp co-founder Max Levchin, is set to destroy the credit card, or at the very least make a noticeable dent in its total ubiquity. The company, which started in 2012 by offering simple and transparent loans for purchases on the web, is today launching a mobile app to the public that acts like a virtual credit card, so it can be used as a Pretty unconditional line of credit for almost any online purchase. The app is available now for iOS and android.

The virtual card grants you a single-use card number, expiry date and three-digit security code, which can then be used to make singular online purchases, while the redemption plan is managed through the ‘application. Instead of ever-changing rates and fees, Affirm gives you a fixed percentage interest rate up-front – it ranges from 10% to 30% – for individual purchases and tells you exactly how much you’ll pay up front. to buy. To use the service, you must provide proof of your identity, but credit is only given for the item you wish to purchase, with the company determining your likelihood of repaying the loan based on your current credit and the amount total lent. The company says it will refuse loans if it detects “excessive” borrowing behavior, suggesting it has built-in barriers to prevent it from being used as a high-limit credit card.

“It’s a real alternative to credit cards,” says Jack Chou, product manager of Affirm. “The namesake of the product itself, the credit part, is fundamentally broken. We believe there is a better way to better align with consumer interests.” The premise of Affirm’s argument is simple : Credit card companies make money by extending credit to people who may not be able to repay it, leading to increased debt and revenue for credit card issuers in the form of penalties, increasing interest payments and other charges.

Affirm makes money from its fixed interest rates and discounts from participating merchants – the longer you decide you need to repay the company, the more interest you’ll pay. But the rate remains the same and Affirm limits repayment to three, six and 12 months. It also does not extend aggregate credit like a credit card company does. You will need approval for every purchase you attempt to make, up to a maximum of $10,000. The company may deny you larger purchases if it determines that you are unlikely to make the payments on time or if you have been late paying other smaller Affirm loans. In total, Chou says Affirm has made more than a million loans totaling more than $1 billion since its inception about five years ago. It also has more than 1,000 partner merchants, including mattress maker Casper, furniture site Wayfair and Expedia.

However, with its virtual card, Affirm no longer wants to limit itself to partner merchants. According to Chou, partnering with sites is primarily a way to raise awareness of the product by offering it to people who may not have heard of Affirm before, as well as helping to create a simpler experience by integrating directly into a merchant’s payment process. From now on, Affirm wants to extend its services to all and all merchants, addressing the consumer directly with a virtual card. “We want to be transparent, honest and clear with our customers,” says Chou. “We believe existing incentives from institutions and credit card companies are not aligned with customers.”

Of course, Affirm can’t magically stop people from defaulting on their loans, and failing to repay the company will eventually freeze your credit score. Now that the company is opening up to many other online vendors, that will inevitably mean more users trying to use Affirm for smaller, potentially impulse-related purchases, which could overwhelm you with payments. unnecessary interest. Although Affirm can offer an APR as low as 10%, or in some cases zero percent for some partner merchants, you still run the risk of paying more for a purchase using the company’s virtual card than if you had a standard credit card. For those who are just bad with money and borrowing, it presents the same pitfalls as a credit card, but with a few built-in speed bumps and warning signs.

Affirm’s key differentiator is that it does not offer a “revolving” line of credit, as its website puts it. If you start taking out a number of loans, Affirm should shut you down until you’ve paid off your existing loans. So while Chou describes the new virtual card option as a true alternative to credit cards, it’s probably more accurate to say that Affirm is an alternative to the high-limit nature of some credit cards. It’s a great option for people looking to finance an expensive piece of furniture or a plane ticket, but it’s not so great for buying books on Amazon or mid-priced electronics. If you just don’t trust credit card companies or big banks and don’t feel like doing business with those hunches, Affirm gives you a way to spread out payments without having to put your name on it. a piece of plastic Chase or Bank American brand.

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