Affirm Buy Now, Pay Later Review: A Flexible Payment Option for Artists

Affirm is a popular Buy Now, Pay Later (BNPL) service that allows consumers to make purchases and pay for them in installments. For recording artists and music professionals, Affirm offers a way to fund essential purchases, like equipment or services, without the upfront cost. This post explores how Affirm works, its pros and cons, and whether it’s a good fit for your financial needs.

What is Affirm?

Affirm provides installment loans that allow consumers to buy products or services at full price while spreading out the payments over time. Affirm pays the merchant in full at the time of purchase, and you repay Affirm in installments. The repayment terms vary, with the option of interest-free plans for shorter terms or interest-bearing plans for longer durations.

How Affirm Makes Money

Affirm charges merchants a fee, up to 9.9% + $0.30 per transaction, to offer its services. This means Affirm’s profitability isn’t solely dependent on interest from customers, making interest-free loans a feasible offering.

How Affirm Works

1. Choose a Purchase: When shopping at a retailer that accepts Affirm, select it as your payment option at checkout.
2. Set Payment Terms: You can choose a repayment schedule, typically ranging from 3 to 36 months.
3. Repayment: Affirm splits the cost into fixed monthly payments. Some plans are interest-free, while longer terms may include interest rates of up to 36% APR.

Example: Interest-Free Plan

• Loan Amount: $2,000
• Term: 24 months
• Monthly Payment: $83
• Total Cost: $2,000 (no extra charges)

Example: Interest-Bearing Plan

• Loan Amount: $2,000
• Interest Rate: 15% APR
• Term: 36 months
• Interest: $300
• Monthly Payment: $64
• Total Cost: $2,300

Unlike traditional loans, Affirm ensures transparency; you pay exactly the interest rate you see upfront, with no hidden fees.

How You Qualify

Affirm evaluates several factors to determine your eligibility:

• Credit History: Past payment behavior and creditworthiness.
• Ability to Repay: Income and financial stability.
• Credit Utilization: Your current credit usage compared to your available credit.

For most purchases, Affirm performs a soft credit check that doesn’t affect your credit score. However, for larger loan amounts, Affirm may conduct a hard credit check, which could impact your credit.

Affirm's Limitations

While Affirm is a flexible payment option, it’s important to understand its restrictions:

• Merchant-Specific Use: Affirm can only be used with participating retailers, limiting its applicability. 
• No Cash Option: Affirm doesn’t provide cash loans, so it can only be used for specific purchases.
• Limited Applications for Artists: Some essential expenses, such as studio time, advertising, beat purchases, and attorney fees, may not be eligible (Unless they accept Affirm).

Payment Structure: Fragmented Payments

Each purchase made with Affirm has its own installment plan. While this allows flexibility, it can lead to fragmented payments, making it harder to track expenses. For instance:

• A $50 charge might be due on the 5th of the month.
• A $100 charge might be due on the 15th.
• A $200 charge might be due on the 25th.

This "death by a thousand paper cuts" can complicate budgeting, especially if you make multiple purchases.

Pros and Cons of Affirm

Pros

1. Interest-Free Options: For short-term loans, you can avoid paying any interest.
2. Predictable Payments: Fixed monthly payments make budgeting easier.
3. Transparent Terms: No hidden fees or surprises; you pay exactly what you agree to.
4. No Impact on Credit Score: Soft credit checks won’t affect your credit for most purchases.
5. No Impact on Debt-to-Income Ratio (DIR): Since Affirm loans don’t appear on your credit report unless there’s a hard check, they don’t affect your DIR.

Cons

1. Usage Limitations: Affirm is only available for purchases with participating merchants, making it less flexible than traditional loans or credit cards.
2. Fragmented Payments: Multiple installment plans for different purchases can become challenging to manage.
3. High Interest for Long-Term Loans: APRs of up to 36% make long-term borrowing expensive.
4. No Cash Option: Affirm can’t provide cash for general use or expenses outside of its merchant network.

Rating

Interest: Good - It's simple interest you're charged upfront. Credit Impact: Good - There isn't any, unless you're financing a major project. Difficulty: Ok. Terms: Great - As long as you can afford the monthly payments, you should be fine. Qualification: Ok - You don't need the best credit, but you may not qualify with poor credit. Interest application: Great - Simple interest. Loan amount: Great - You can find a way to leverage Affirm to get everything you need. Impact on Income: Great - This is in your control because you keep your income and get to choose your monthly payments. Risk: Poor - Payments are dependent on your income, so any loss of income can have major implications. Your credit score could be affected, and terms may change with missed payments, where you face penalties. Flexibility: Poor - You can only buy where Affirm is accepted. You can't dislodge the debt through programs like you can with credit cards. 

Final Assessment 

Affirm is a flexible, transparent BNPL solution, but it’s not without its challenges. For artists, it’s most valuable when used for strategic purchases that align with your creative and financial goals. Before using Affirm, consider its limitations and ensure you have a clear plan to manage payments effectively. What I like about it is the ability to avoid interest and loss of income. Advances come with interest. Catalog sales and advances come with a loss of income because you're sacrificing a percentage of your pay upfront. If you bought an iMac for $3,000 while earning $3,000 annually from streams, you'd have $3,000 and an iMac. With advances and catalog sales, you'd have an iMac and no income.