Fintech startup wants Millennials to take out subprime loans for designer duds

Inside Subprime: August 23, 2017

By Caroline Thompson

If you, like me, do a healthy (read: obsessive) amount of online shopping, you might have noticed a new payment option on your favorite brand’s website. Those Good American jeans might cost $179 a pop, but if you need that cash to pay rent and buy groceries, you can get them for as little as $16/month by opting to buy through Affirm. Sure, after 12 months you’ll have paid $192 for those bad boys, but what’s an extra $13 in the name of fashion?

Affirm is a lending company with more than 1,000 retail partners, dedicated to providing “affordable ways to buy online that are more flexible and transparent than any other credit option.” Affirm targets borrowers who are underserved by traditional credit avenues, meaning people who have poor or subprime credit scores. Or as an article in The Outline puts it, they’re looking for “millennials with low incomes, young credit, and expensive tastes.” While this “buy now, pay later” business model makes sense for traditionally large but necessary purchases like furniture, it gets a little sticky when applied to designer jeans and luxury vacations.

Of course Affirm’s interest rates are nowhere near as high as a payday lender, but they’re higher than the rate you’d pay on a credit card. According to the Outline piece, the average Affirm customer takes out a $750 loan with a 21 percent interest rate. While people take out personal loans and payday loans for all sorts of reasons, usually it’s to cover basic necessities like food, housing or medical emergencies. Most payday borrowers aren’t taking out $750 loans to buy jeans or an HDTV, and that’s what makes Affirm so troubling. By offering ways for people with little to no credit to finance impulse vacations and luxury goods, they may be setting up their young customer base with poor financial habits.

“These are not things people should be financing with a loan and paying interest for,” Robert Harrow, a credit card analyst at ValuePenguin, told The Outline. “They’re almost enabling impulse buys from people. If they’re positioning themselves as an alternative to credit cards or banking, they shouldn’t be. They’re enabling somewhat risky behavior on the part of clients.”

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