Affirm is looking into offering a new subscription service, Affirm Plus, which will guarantee a 0% APR on installment loans up to $2,500 for members who pay a monthly fee, Bloomberg reports.
This strategic move—if executed—puts the buy now, pay later firm in a position to grow its business, particularly during a time when many BNPL companies are struggling to remain profitable with their current business models.
High interest rates are making it more expensive for companies to borrow, which makes it harder for BNPL companies to make money off interest-free loans. As a result, BNPL firms are moving into loans with interest, and slyly pushing customers towards them.
“BNPL loans generally offer 0% interest, but the definition of BNPL has become more flexible, and some options may have interest rates depending on the terms selected,” said Ben Danner, Senior Analyst of Credit and Commercial at Javelin Strategy & Research.
Reading Between the Fine Lines
When it comes to loans with interest, it fully depends on the specific terms negotiated with the merchant, as well as the product purchased. It’s important to carefully look at the details when buying a product, something Danner took note of when purchasing a Peloton bike.
“When I went to buy a Peloton, I was sent a code to sign up for the bike financing through the Affirm app,” Danner said. “Surprisingly, the default option was an interest-bearing plan. If I had quickly accepted it, I would have been locked into a plan with interest, but I swiped over to the 0% interest plan.”
Danner’s example illustrates how complicated BNPL services can be. While marketing often alludes to an interest-free experience, that’s not necessarily the case – it depends on the product, the vendor, and their partnership with the BNPL provider.
A potential monthly subscription from Affirm may further add complexity to its business model—particularly as this approach runs parallel to competitor products such as Klarna Card (charges $4.99 monthly fee) and the Possible Card ($8.00 or $16.00 monthly fee) which allow consumers to split their purchases, consolidate the balance, all at zero % interest.
