Spending a lot of time on shopping websites is, for me, an occupational hazard. Questions of consumerism are central to my job on a lot of levels, and both the joys and limitations of shopping as a hobby come up frequently while writing and researching. Lately, there’s been one notable phenomenon in the research phase of my day: an increasing number of brands and retailers are now offering their own third-party financing options, like small personal loans for your closet—no credit card required.
The first such company I ever saw offering this service was Affirm, which I started noticing on e-commerce sites over a year ago. According to Racked, the service is exactly what its presence on high-end clothing retailers would make it seem like: a relatively new microloan business, doling out small personal loans for everything from plane tickets to fancy jeans. The company has been around since 2012, but only relatively recently has it become more visible across fashion sites.
Affirm recently started offering 0% APR with select retailers, but in general, its interest rates range between 10% and 30%, depending on your credit score, similar to many credit cards. Payments on Affirm loans are made monthly, with fees for missing a payment, just like most traditional credit sources. The difference is that you get approved or denied immediately, at the point of sale—it’s like if stores gave out credit cards with limits set for only the thing you already have in your hands.
Yesterday, while researching a different story, I came across one of Affirm’s apparent competitors for the first time: Afterpay, which is an Australian financial technology company whose service works a little differently than Affirm or the credit cards and personal loans that came before it. If a site offers Afterpay, you can split a purchase between $35 and $1,000 into four payments, automatically deducted from your bank account every two weeks, which seems to assume the purchaser gets a paycheck every two weeks. As long as those payments are made, there’s no interest charged, but late payments incur an $8 fee.
Affirm has confused me since I became aware of it, because it doesn’t function substantially differently than any of the credit cards I already have—wouldn’t someone who can get approved for a personal loan also have decent enough credit to have a card that functions under similar terms? Wouldn’t simply using that existing credit be better for your credit score than opening a new line that requires an inquiry to the credit bureaus? Maybe it’s just a psychological thing that doesn’t appeal to me: having the debt in a separate place and knowing it will be paid off diligently and in a set amount of time might be comforting to some people.
On the other hand, I totally get Afterpay—what if you spot the bag of your dreams on sale before you’ve fully saved up the purchase price? The promise of no interest and the short timeframe to be done with the payments make it a more appealing option for me, because the fact that you took out a personal loan and with it you bought shoes (because of the $1,000 cap, most designer handbags would be out of its range) isn’t hanging over your head for like a year. It would only work if you had regular paychecks, but without them, paying monthly payments to any other creditor might be tricky anyway.
Still, though, I’d feel a little weird using any kind of personal loan service just to buy something fun and unnecessary. I was a little less mindful of these things in my mid-20s, and I’m still paying off the last of those youthful credit card indiscretions, which is a process that has taught me a lot about, well, not buying things I don’t have the money to pay for right now.
At the same time, designers are moving to make their most compelling pieces ever more elusive in order to urge shoppers to buy at full price, and sometimes the heart wants what the heart wants, and what the heart wants will be sold out by the time the budgetary math catches up. So we want to hear from you: Would you finance a bag, with one of these services or some other way? Have you?
I have purchased plenty of bags with money I didn’t have. Put them on credit card or made the mistake of using PayPal credit. It makes no logical sense and certainly no financial sense. I spent years on this merry go round and only have an occasional flare up these days. True story.
The only reason to put an expensive bag on a credit card is to harvest points / miles. But it’s gotta be paid off the next month (so not really financed).
never.
Nope, I never buy something that I can’t pay for in the first place.
i pay with cash, not even credit – i don’t trust myself to pay it off in time.
even with cash i’ve found myself overspending, but at least i’m not in any debt… then i learn my lesson after getting bored from a week of instant ramen.
I have never and would never. Financing a bag one can’t afford is extremely fiscally irresponsible.
100% agree.
Thanks for this post! I was wondering what Affirm was…
Nope, if I felt that I needed a loan to obtain a bag, I would take that as a sign that I shouldn’t purchase said bag. I buy all my bags with a credit card, and pay off the whole balance when it’s due.
I agree. Only purchase what I can afford and pay off when the credit card bill is due. I don’t want to pay interest on an already super expensive bag.
Same for me. Anything else would be the way to financial ruin for me.
I just save up and wait, and if it’s not meant to be then it’s not meant to be! There are very few bags that I’ve still wanted after months of consideration, and very few regrets I have from not jumping immediately on a bag. I have more regrets for the bags I did buy! And the bags that I continuously love and lust after are finding their way into my collection without my needing to take a loan.
Actually one regret – an HG bag I wanted went on sale, and I borrowed money from a friend to buy it. The one and only time I did that, and it was a total pain in my butt. Embarrassing, but that’s the truth. I said I would never buy anything I didn’t have the money for ever again and have stuck to it. Worst part of the story is that the bag went even FURTHER on sale later! So not only did I have to borrow money, but I could have saved more money! Lesson very much learned.
Never. I charge most of my purchases on credit for loyalty rewards but pay in full every month. If I can’t afford something then it’s too rich for my blood and I’m fine with that.
Like most people do, I pay for my bags with a credit card to get reward points. It’s no brainer even if you have the cash to pay it.
My first time financing something was when I was a student and needed furniture. I couldn’t afford a lot so I financed a dinning room set and I thought I was crazy for doing that. Just the idea of financing A BAG sounds even crazier for me… until earlier this year when I bought a bag from second-market store Trendlee (now Rebag, I think). I had the money to pay it off but decided to try financing with Affirm since they offered 0% APR. After a few months, I decided to pay it off. I simply couldn’t wrap my mind around financing A BAG. I kind of regret that purchase, actually, but you live, you learn…
Never. Ditto for jewelry or any premium designer shoes, SLGs etc. It’s a slippery slope. I may pay for a bag with a credit card for the miles or points, but then I make sure to cover the amount I charged within two weeks at the most. I wouldn’t enjoy carrying a bag that wasn’t paid for. I’ve also made a bargain with myself that before buying a designer bag, I have an amount equal to the purchase price set aside to go into our personal savings.
A new directly from the store seasonal bag? 99% not, a new also from the store staple bag, say a 2.55, Ps1 or Kelly that I’ve been longing for years? maybe considering the way prices have increased in the last decade, although I could wait a little longer. A second hand seasonal bag that I’ve loved for almost a decade and therefore known how weird it is to see them available and within what price range and condition I might find it? That’s more likely, maybe a 75%
Not like this. I bought my Chanel bag from Saks and got one of their lines of credit which let me pay the bag off with no interest and equal payments for 12 months. It was perfect. But I did that because of the zero interest and because it had to be paid off in a year. If I didn’t know I’d be able to do that financially, I wouldn’t have bought the bag. The credit line was just a convenience (especially because i got hella points and gift cards from it).
That’s the way to do it.
That’s the way to do it.
No. There is a fine line between needs and wants, and a bag or a pair of fancy Manolo shoes definitely is in the luxury/ wants section of one’s life. I work in finance and I can tell you horror stories over people who spiralled into debt over the silliest things.
Just use PayPal, which is 6 months no interest. I don’t believe in paying any kind of interest.
I posted a response to a comment first, then read the rest of the comments and have to say I am so impressed with the fiscal responsibility of this group of PB readers. Getting into a sticky financial situation can very quickly turn purse love into something else entirely.
I don’t. But I think it’s a trend lately. In my country, offering 0% interest for 3-10 months installment seems to be a norm in almost anything to make people decide to buy easier. Sometimes, they even offer discount for 2-5% if you decide to do the installment, but not at all if you choose to pay as a whole, especially in home electronics. It’s a weird and scary thing to think how many people must miss their financial commitment enough for the store to still keep this going and be profitable.
Yes! I love Affirm!
For the author of this article, Affirm does not in any way affect your credit score when you apply for a loan. That’s because a soft inquiry is pulled- not a hard one (PayPal, for example, is a hard inquiry). Your credit score is not affected in any way. If you research this you will see this.
Another reason I love Affirm is because you have the option to pay off your entire balance immediately without being charged interest. So yes, it’s not really different than a credit card, but, on a different note, the interest rate I get with Affirm is lower than the rate I get with my credit card.
Also, unlike a credit card, there are no late fees if one is ever late on a payment. I never use my credit card for luxury purchases- only Affirm.
Also, in the case of Chanel or Hermes, given the frequent price increases, by the time one has enough money saved up to pay for the purchase in cash, the price will no doubt have risen considerably!
How weird, just this week I was thinking about the beauty of Afterpay even before having read this article! Afterpay recently moved to US shores to partner with retailers. I’ve got so many purchases going atm with them and Zippay, another Aussie payment service. I wouldn’t go as far to buy a bag though, I would definitely incur a fee due to no money. They give you reminders to have enough in your a/c so they can transact the part pyts, which is helpful. If it’s something reasonable, I prefer to drip drop my pennies. Great article Amanda!
Hell no! If I can’t afford it, I can’t afford it! Why having a zillion dollar bag if I don’t have the life that goes with it:)
NEVER!
With so many bags in my bucket list I don’t think I would do this. I change my mind about a bag so often that I might not like the bag after paying the first instalment. LOL!
Never!
Rachel, you are 100% incorrect about Affirm Not affecting your credit. Any product you purchase with Affirm s how’s up and stays on your credit report as a paid loan. I bought 4 times off of betabrand site (great yoga pants-not for exercising, real work pants you can basically do yoga in) . All 4 loans are still on my credit report. It’s been Two years. I paid them on time and shopping with Affirm was easy-to-use but those loans are on my report and counts towards number of inquiries and installment. I didn’t even realize it until I was reading reviews on some search I was doing- possibly for another product you could purchase with Affirm- Pellotan bike, I be!ieve. This person wrote that he wasn’t able to qualify for a party credit card because of the Affirm loan on his report. I have not had any problems getting all the credit cards I have wanted having Affirm loans on my report but mine were all paid before I applied for them. I tried to get them removed from the report as they were all paid but that did not happen. Also Affirm insists they do this to help consumers improve their credit by showing their timely consistent payments. Buyer beware!