Microloans For Clothing, Flights, & Furniture Have Infiltrated Online Shopping. But Should You Use Them?

The bag was incredible. Made of black vegan suede with two heavy silver chains for straps, the front was festooned with glittery resin gems of all shapes and colors. I had seen it months before on clearance at Barneys but didn’t decide to pull the trigger — I like to really obsess good and hard over my purchases — until it was too late and the bag was gone. So when it finally popped up again on the consignment site Tradesy, I knew I had to have it. The only problem? It was $595. This is an undeniably large sum of money to pay for a bag (though to be fair, it was more than 60% off the original price), but I knew this was the kind of extra-special piece I’d use for a long time. And there was only one available, so I had to act fast. There was some extra cash coming in from a freelance gig, but the check wasn’t in my hand yet, and I didn’t want to put it on my credit card. That’s when I noticed a small icon at the bottom of the page. It was for something called Affirm. 

If you’ve shopped online at Brooklinen, Casper, Leesa, The Real Real, Rag & Bone, Peloton, Pat McGrath, David Yurman, Dyson, Adidas, or any number of other consumer sites, you’ve probably seen this same logo. Airlines and travel booking sites like Delta, Priceline, and CheapOair also have an Affirm option, as do Eventbrite and Stubhub. This year, Walmart.com even began taking it. So, what exactly is the end-result of using this money-lending service: Is it a smart financial move, a useful but potentially problematic payment option, or just another example of a corporation trying to scam cash-poor millennials out of our hard-earned money in the fine print?

Founded in 2012, Affirm is a microlender, which means it offers small loans (sometimes called “shopping loans” or “point of sale loans”), typically for sums in the hundreds or thousands of dollars. Microloans are a way to finance the type of purchases one might typically put on a credit card, without having to qualify for and maintain a credit card. On some payment plans (typically ones where you pay your loan off in three months or less), you can get 0% interest, meaning you pay no more than the price of whatever you purchased. For longer-term loans, usually between six and 12 months, interest rates are typically between 10%-30%. 

Affirm isn’t the only company offering these kinds of loans, but it does seem to have infiltrated the market for consumer goods people want immediately but often can’t outright afford — designer clothes and accessories, mattresses, furniture, flights, electronics, event tickets — more deeply than its competitors (most of which have names that sound like something an SNL writer might come up with for a sketch roasting start-up culture: Peerform, Klarna, Earnest, Wonga, Zebit, Zest, Plastiq, and AfterPay. Like with credit cards, there are some variations between what each offer, and even within the same firm, you’re likely to have plans that differ pretty greatly. 

While my own experience with Affirm was positive — I paid off my loan in less than three months, didn’t pay any interest, and perhaps most importantly, obtained the bag I wanted before anyone else could snatch it up — the wider reviews are mixed, and most financial professionals are not fans. “In general, we definitely recommend not using these kinds of loans,” cautions Kimberly Palmer, a personal finance expert with NerdWallet. “We recommend not using them because there are cheaper options available. The only way we would reasonably recommend using them is if you don't have access to those other options.”

Palmer is careful to note that Affirm and similar services aren’t necessarily predatory in the manner of payday loans, which often come with APRs as high as 400%, and are known for trapping financially insecure borrowers in an endless cycle of debt. But, she says, if you qualify for a 0% or low-interest-rate credit card, you’re better off using that. Why? For one thing, with a good credit card, you’ll get perks like cash back or points that can be used to pay for travel, meals, and other expenses. 

“The target customer for these loans is definitely younger consumers who don't have a credit history, so they can't qualify for a credit card that might offer them a better option or even a personal loan that has a lower rate,” Palmer says. 

Affirm allowed Courtnie, a 31-year-old consultant from Kansas City, to buy a Casper mattress when she needed one and didn’t have access to a credit card. “We financed $1250 over 18 months, with an interest rate of 29.9%. It was a high interest rate, but added about $300 to the total purchase price,” she explains. “My husband and I had to get a new mattress for medical reasons, and it wasn't something we could really afford as a lump sum. We did the math and decided we were okay with the extra $300 over 18 months in order to ensure we were sleeping better.”

She had never heard of the service before seeing it on Casper’s website, but says she’d probably use it again for something major, like a new couch or a living room set, especially given the ease of the application process. “We rarely make such large purchases,” she notes, “but if we decided to purchase something large again, we'd consider it!”

Affirm’s application process is very simple — on most sites, you just check out like normal, but instead of entering a credit or debit card, you select Affirm. You’re then redirected to its site, where you enter some standard personal information. You find out whether or not you’ve been approved in a matter of minutes. According to Affirm, applying for a loan with it can’t hurt your credit score. And, Palmer says, if you pay it off in the agreed-upon timeframe, it can actually help you build up a good credit score, because Affirm reports back to the major credit bureaus. So, theoretically, a couple of successful microloans could help you get to a place where your credit is good enough to go the more traditional credit card route. (Some other microloan firms, like Klarna, do not report back to credit bureaus, so if this is your objective, research this first.)

Businesses, especially independent ones, like point of sale loans for an obvious reason: They get people to buy more stuff. Jeff Mortiarty, of Moriarty’s Gem Art, a fine jewelry store based in Indiana, says his company has been offering both Klarna and Sezzle for about nine months after finding out about them on a Facebook group for users of Shopify Plus, an e-commerce platform. “Because we sell higher-end jewelry, it allows customers that may not be able to regularly afford them make payments over time leading to more sales and higher conversions for us,” he says. 

In particular, Mortiarty says, Klarna and Sezzle have led to an increase in engagement ring sales, which makes sense, given that a majority of people buying those pieces are relatively young. “We have sold many more engagement rings than in previous years due to this service,” he shares.

For young people or just those of us (*raises hand*) who readily admit to not being great with managing money, microloans also offer a psychological barrier to buying excess shit... at least when compared to credit cards. Sure, most of what’s available for purchase via microloan doesn’t fall into the category of absolute necessity, but the fact is, it’s a lot easier to absentmindedly swipe a credit card than it is to go through the approval process for a loan with the likes of Affirm. Oh, and your local bar definitely doesn’t accept microloans, so no sweat there (yet). (Some companies, like Affirm and Klarna, are introducing cards that can be used for in-store purchases, but the store still has to be one that accepts the payment method.)

Plus, while credit card payments can vary from month to month, you’ll always know exactly how much you owe on an Affirm loan. Some credit card companies like American Express, Citi, and Chase are beginning to offer something similar. “We’re seeing more competition in this area,” Palmer says. “People like it because it’s very predictable.” While predictable may not be what you want from, say, a lover, or your office holiday party outfit, when it comes to the monthly siphoning-off of your paycheck, it’s downright aspirational. 

However, if you don’t like being consistently reminded of a maybe-questionable purchase for several months on end, even predictable payments can be less than ideal. One of my Refinery29 co-workers recalls buying a custom bracelet as a present for her mom when she was, “not like I-cant-pay-my-rent broke, but just, ugh, I don’t want $300 hit to my credit card broke.” She paid in four monthly payments and says, “It essentially dragged out the bad feeling of dropping a chunk of money over the course of four months. Like, every time I got the email notification, it made me sad.”

The fact is, there’s nothing like spending money that you actually have. But we’re living in a society with a long tradition of spending money we don’t have. It’s not just us, even the U.S. government does it! Before there were services like Affirm, there were IOUs and tabs and even The Code of Hammurabi, an OG document (we’re talking 1750s B.C. here) laying down laws about borrowing, loaning, and interest. 

So, whether or not financial advisors — something, unfortunately, most young people don’t have direct access to — are on board, Affirm and its competitors will likely continue to flourish at online retailers. They’re offering something people want and have, in one form or another, relied on for centuries. Whether or not this particular iteration is a good or bad thing is ultimately up to those of us who choose to use it.