Buy now, pay later services have become increasingly popular in recent years, making it easier for customers to purchase products without having to pay for them upfront. Afterpay and Affirm are two of the most popular buy now, pay later services on the market today. Both offer customers the option to purchase items online and pay for them in installments, but they have some key differences that you should be aware of before deciding which one is right for you. In this article, we’ll explore the differences between Afterpay and Affirm, so you can make an informed decision and manage your business cash flow efficiently.
What are the buy now, pay later services?
Buy now, pay later services, or deferred-presentment credit, allow customers to purchase items and pay for them later in smaller, more manageable monthly installments.
These services have become increasingly popular over the past few years because they make it easier for people to purchase online, where many retailers require a credit card as a form of payment. While some buy now, pay later services ask shoppers to put down a security deposit, others go without any upfront investments. Let’s look at various buy now, pay later options in more detail.
- After-sale financing
After-sale financing is a financial arrangement offered by retailers to customers after they have made a purchase. It allows customers to secure a loan or credit to cover the purchase cost, often at a fixed or promotional interest rate. This option is convenient for consumers who may not have immediate funds available but wish to instantly acquire a product or service and pay for it over time.
- Installment plans
Installment plans involve breaking down the total cost of a purchase into a series of smaller, fixed monthly payments. Customers agree to pay these installments over a predetermined period, ranging from a few months to several years. Retailers may offer this service with or without interest charges, depending on the terms of the installment plan.
Layaway is a buy now, pay later method where customers select items they want to purchase, but instead of taking them home immediately, they place them on hold at the store. The customer then makes periodic payments until they cover the cost in full. Once done, the customer can take possession of the items. Layaway is typically interest-free, making it a budget-friendly option for those who prefer to pay for items gradually.
Rent-to-own is a financial arrangement where customers can lease a product for a specific period, with the option to purchase it at the end of the lease term. Customers make regular rental payments, of which a portion typically goes toward the eventual purchase price. This method is popular for big-ticket items like appliances and electronics, offering flexibility to own things without a significant upfront cost.
- Deferred interest plans
Deferred interest plans might come together with credit cards or store financing. Customers can make purchases and delay interest payments for a specific promotional period. However, if the balance is not paid in full by the end of the promotional period, interest is retroactively applied to the entire purchase amount. Customers must understand the terms and deadlines of their deferred interest plans to avoid unexpected charges.
Overview of Afterpay
Afterpay, which is a subsidiary of the parent company After Group, is a buy now, pay later service that lets customers purchase items now and then make interest-free repayments over the course of four weeks. Afterpay has become one of the most popular buy now, pay later services in Australia, and it’s available in the United States as well. Afterpay is partnered with multiple e-commerce retailers, including Amazon, Macy’s, and Walmart, where it is listed as Afterpay under each retailer’s payment options. Afterpay currently has an A+ rating from the BBB, and it has processed more than $1 billion in payments since launching in 2017. Afterpay is backed by Sequoia Capital, Floodgate, and GIC, and it has raised more than $150 million in funding.
Overview of Affirm
Affirm is a buy now, pay later service that allows customers to purchase items now and then make interest-free monthly repayments. Affirm partners with a wide range of retailers, including Amazon, Best Buy, Gap, J. Crew, Macy’s, and Walmart, to provide its services to customers. Affirm was founded in 2014, and it was acquired by PayPal in 2016. Affirm has an A- rating from the BBB and has processed more than $12 billion in payments since launching in 2014. Affirm has raised more than $250 million in funding, and it is backed by investors like Sequoia Capital, Founders Fund, and Thrive Capital.
Key differences between Afterpay and Affirm
Here are a few key differences between Afterpay and Affirm.
With Afterpay, customers will pay the full amount of their purchase in four weekly installments, whereas with Affirm, customers will pay the full amount of their purchase in one monthly installment.
- Credit requirements
Afterpay doesn’t require any credit checks or income verification, making it easier for customers with limited credit to access its services. Affirm does require customers to submit their names, Social Security numbers, and incomes to initiate a credit check, so it will be harder for customers with limited credit to get approved for Affirm.
- Minimum purchase amount
Afterpay requires customers to purchase items that are at least $60 in order to qualify for its services, while Affirm requires customers to purchase items that are at least $75.
- Credit line
Afterpay offers customers a credit line of up to $500 per person, and it is $15 per week for every $100 borrowed. Affirm offers customers a credit line of up to $2,500 per person, and it charges $10 per month for every $100 borrowed.
Eligibility requirements for Afterpay and Affirm
Afterpay and Affirm have different requirements to consider people eligible to use their services. Here they are:
- Credit score
Afterpay doesn’t require a credit score, meaning that customers with limited credit will still be able to access its services. Affirm does require a credit score, so customers with limited credit will likely have a harder time getting approved for its services.
Afterpay doesn’t require customers to submit their incomes, while Affirm does require customers to submit their incomes.
- Debt-to-income ratios
Afterpay doesn’t require customers to submit a debt-to-income ratio, and it doesn’t report a customer’s use of its services to credit bureaus. Affirm does require customers to submit a debt-to-income ratio, and it reports a customer’s use of its services to credit bureaus.
Fees associated with Afterpay and Affirm
Both Afterpay and Affirm don’t charge an application fee.
Afterpay charges a $2 weekly late fee if a customer doesn’t make their payment by the due date, while Affirm doesn’t charge a late fee.
Afterpay doesn’t charge interest, while Affirm charges interest of between 19.99% and 29.99%
Pros and cons of Afterpay and Affirm
Let’s take a closer look at the pros and cons of both Affirm and Afterpay.
Pros of Afterpay
- No application fee – Afterpay doesn’t charge an application fee, while Affirm does.
- Credit line amount – Afterpay offers customers a credit line of up to $500 per person, while Affirm offers customers a credit line of up to $2,500 per person.
Cons of Afterpay
- Higher fees – Afterpay charges a higher application fee than Affirm, and it charges a weekly late fee and interest on any outstanding balance if a customer doesn’t pay their installments every week.
Pros of Affirm:
- One monthly payment – Affirm offers customers one monthly payment, whereas Afterpay requires customers to pay their purchases in weekly installments.
- Credit requirements – Affirm doesn’t require a credit check, meaning that customers with limited credit will still be able to access its services.
Cons of Affirm
- Higher interest rates – Affirm charges higher interest rates than Afterpay.
- Minimum purchase amount – Affirm requires customers to purchase items that are at least $75, while Afterpay requires customers to purchase items that are at least $60.
Overall, Afterpay and Affirm are two of the most popular buy now, pay later services on the market today. Both of these services make it easier for people with less than stellar credit to purchase items online, where many retailers require a credit card as a form of payment. Afterpay and Affirm each offer customers a credit line, allowing them to borrow money to make their purchases. Although both services offer customers interest-free financing, it’s important to keep in mind that using Afterpay or Affirm can impact your credit score.
Keep track of your cash flow from buy now, pay later services with ease by connecting them to Synder – check how the software works.