The Dangers of Using Affirm

The Dangers of Using Affirm

January 04, 2022

Remember the days of layaway? Walmart was one of the biggest retailers in the US that allowed customers to “reserve” items and pay them on layaway. In other words, the customer establishes a purchase plan and once all of the payments are complete, the retailer hands the items over.

Affirm, and other vendors, have implemented similar programs but they allow customers to get the products now. Have you done any online shopping where the total comes out to $100 for example, but you have the option to make four monthly payments of $25 using Affirm instead?

While this might seem harmless, you’re paying the same amount at the end of the day anyway, it can quickly become a slippery slope of buying more items than you can afford to pay off. People have a tendency to overspend, especially if they know they don’t have to make the whole payment up front.

Look at the housing market or auto sales for example. How many times have you heard “don’t buy a house for the maximum amount the bank approved you for?” This is because it’s easy to look at what we think is a manageable monthly payment and forget how much we actually spent on the total product. It’s the same reason that electronic stores let you put computers on payment plans, or Peloton advertises their bikes as only $60/month rather than the $2,000+ that most customers end up paying in the long run.

It’s easy to think to ourselves, ‘if I’m going to pay for this monthly, I could buy even more things and put them on payment plans as well.’ The problem with this is that we can quickly find ourselves with monthly bills that are not only overwhelming but there’s no end in sight. Affirm and other similar vendors make money by providing loans to consumers and charging an interest rate or from the merchants themselves like your credit card company.

The best way to avoid falling into this trap is to only purchase items that you can afford to pay for right away. Don’t get sucked into the trap of payment plans when it comes to inexpensive everyday items, and instead save up, make sure it’s something you actually want to buy and purchase the product when you can comfortably do so.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.