As an ecommerce merchant, it’s essential to offer your customers various payment options, as it removes one more barrier to completing a sale.
One popular payment method is buy now, pay later (BNPL), a type of loan that lets customers immediately buy and receive products or services and pay for them in installments. BNPL is gaining traction, with one survey reporting 56% of US ecommerce vendors offered buy now, pay later options online in February 2024.
If you’d like to add BNPL to your ecommerce store, you can choose from several BNPL providers, including Shopify’s Shop Pay Installments, which is offered in partnership with Affirm. Affirm is a platform for point-of-sale financing, and is an option for both online and in-store purchases.
Here’s more about how Affirm works for customers and merchants.
What is Affirm?
Affirm, a buy now, pay later company, provides third-party lending that allows customers to pay for products or services in installments. Similar to other BNPL services, Affirm pays merchants the total amount upfront and gives customers point-of-sale loans to be repaid over a set period.
Shopify’s Shop Pay Installments is a BNPL service offered in partnership with Affirm.
The most common payment structure for Affirm and other BNPL companies is four interest-free payments paid biweekly, although various payment schedules and terms are available. BNPL companies make money when they charge interest on customer loans and transaction fees to merchants.
How does Affirm work for consumers?
Affirm offers customers a BNPL payment plan through eligible stores online, in-person, on the Affirm app, or with the Affirm virtual card. Here’s how it works:
Sign-up
Companies partnering with Affirm offer it as a payment method on their website or online store. When selecting Affirm for payment, you must enter your full name, phone number, email, date of birth, and the last four digits of your Social Security number.
To use Affirm, you must be a US or Canadian resident, at least 18 years old, and have a mobile phone number registered in your name and a Social Security number.
Credit check
Affirm runs a quick credit check to confirm your identity and determine whether you qualify. Qualification is based on overall credit history, payment history, income, and debt obligations and other factors like current economic conditions and the size of the Affirm loan requested.
Loan approval or denial
Depending on the loan application, Affirm can approve submissions within seconds. If a customer’s application is denied, Affirm sends an email explaining why. If approved, customers receive their loan terms to review, which include information about interest rates, payment schedules, and the amount due for the first payment.
Loan repayment options
Affirm offers two structures for their point-of-sale loans:
- Pay in 4. Pay in four biweekly payments.
- Monthly installments. For larger loans, you can make monthly payments over three, six, or 12 months, with the flexibility to extend up to 48 months.
Affirm is unavailable for purchases of less than $50. The maximum credit limit for eligible customers is $30,000.
Interest rates
Although Affirm’s Pay in 4 option involves interest-free payments, the interest for monthly payments can range from 0% to 36% APR. The exact interest rate for a particular installment depends on the transaction amount and the customer’s credit history.
Both biweekly payments and monthly payments may require a down payment, especially for more expensive purchases. For example, at the maximum $30,000 level, qualified customers would need to make a $10,000 down payment.
Affirm sends transparent agreements with no hidden fees or late fees. It also only charges interest on the purchase amount itself rather than compound interest, which involves interest on interest.
How does Affirm work for merchants?
If you want to partner with Affirm, you can apply through its website. Here’s how it works:
Eligibility
Businesses using Affirm must sell directly to customers in the United States or Canada, use a bank account based in the US or Canada, and have a website in English with products priced in USD or CAD.
Affirm works with merchants who have an average order value of more than $50 and fall outside of Affirm’s prohibited business policy. This includes businesses selling weapons, sexually oriented products, and products making medical claims that haven’t been approved by a regulatory body.
Application approval or denial
Affirm typically approves or denies applications within three to five business days. If approved, you can set up your Affirm account and select which financing programs you want to offer, including four biweekly payments or monthly installments ranging anywhere from one to 48 months.
Affirm offers quick and easy integrations with major ecommerce platforms like Shopify. It also has a merchant portal allowing you to view and manage your company’s charges from a straightforward dashboard.
Payment terms and fees
When customers choose Affirm as their payment method on your ecommerce store, Affirm sends the purchase amount to your business bank account through an ACH payment within one to three business days. Customers then pay Affirm over several agreed-upon installments until the total purchase price is paid off.
Affirm charges a merchant discount rate (MDR)—a fee charged to merchants as a base percentage of the transaction—and a transaction fee for every purchase. Although the exact transaction and merchant fees differ depending on a company’s size, risk profile, and agreement with Affirm.
Does Affirm affect credit scores?
When you create an account with Affirm, they perform a soft inquiry, also known as a soft pull, into your credit. This check itself has no impact on your credit score. Most Pay in 4 options Affirm offers include a 0% APR, which does affect your credit score.
However, Affirm does report installment loans and late payments to credit bureaus, which can negatively affect your credit score. Affirm typically reports your first monthly installment loan to the credit bureau Experian, but once you’ve paid the loan off, Affirm won’t report subsequent short-term loans unless they become overdue by 30 days or more.
How do returns work with Affirm?
To make a return, customers must contact merchants directly to process the return or cancel the order. Once the merchant accepts the return or cancellation, refunds will be processed within three to 10 business days. Processed refunds are irreversible.
📚Read more: How To Write a Return Policy (+ Free Template)
If a customer making a return has already made payments, Affirm will not refund the interest the customer paid. Similarly, Affirm will not refund the merchant discount rate or transaction fee to the merchant for a return.
If a merchant issues a partial refund, the customer will see their loan balance reduced by the partial amount. If the merchant issues a store credit instead of a refund, the customer will still be responsible for paying the total amount of the original purchase to Affirm.
How does Affirm work FAQ
What are the alternatives to Affirm?
Some alternatives to Affirm include Klarna, Apply Pay Later, PayPal, and Afterpay. Shop Pay Installments is offered in partnership with Affirm.
Is Affirm safe?
Affirm is among the leading buy now, pay later (BNPL) service providers. It offers qualified customers a Pay in 4 option consisting of four biweekly interest-free payments. Read the fine print of your agreement with Affirm to ensure you’re comfortable with the payment terms, schedule, and interest rates, if any.
Does Affirm affect your credit?
Affirm can affect your credit score, but only if you miss payments or take out a large loan in monthly installments.
