Beware of Schematic Loans Advertised on Instagram
We’ve already warned readers about attractive new credit card companies like Affirm looking to replace credit cards with quick credit, integrated right into their online shopping pages. For all the talk of helping consumers, these companies are nothing more than friendly moneylenders renamed “premium experiences,” yet dangerous and even predatory. Now on Racked, reporter Suzie Cagle dives deep into Affirm , weighing the pros and cons and assessing the claims of its executives and representatives.
Cagle believes that, on the other hand, Affirm is transparent about pricing its loans, does not increase interest rates, and does not charge hidden fees. CEO Max Levchin says he opposes the traditional credit model, which he says “relies on client rejection.”
But, as Cagle points out, Affirm’s average interest rate is 19 percent higher than the average credit card rate, and retailers are using the company to create and then aggressively advertise a model of buying expensive products on credit. Despite all of Affirm’s talk about responsibility and helping consumers choose, their third most popular consumer category is fashion. “Clothes are the only criticism we get. It’s like, oh my god, you’re funding the purchase of a pair of shoes, says Chief of Staff Ryan Metcalfe to Keigla. “We had this debate within the company,” he says.
It seems clear which side won this dispute. What is responsible in attracting loans for $ 300 sneakers? “I find it insincere that they are trying to code it as if they are trying to serve underserved people,” said Keigla Lauren Leimbach, executive director of the nonprofit Community Financial Resources. This summer, Cagle’s investigation follows on Twitter based on Instagram ads from Affirm:
Confirmation seems to only make the problem worse. As Keigl says, “Confirmation is not just about meeting demand, but creating it by encouraging buyers to buy and spend more. Affirm claims an average 75 percent increase in order value for all of its channel partners. ”
One customer, online clothing store Betabrand, found that Affirm’s customers had the same amount of money and good creditworthiness. But even at its best, this service just makes it easy to add interest to your purchase. And by promoting itself as a solution for clients with bad credit, Affirm seems to be struggling to attract these poorer clients and become a smiling, transparent predatory lender.
Metcalfe tells Cagle that a “credit point” is “giving you access to things you couldn’t afford in cash. That doesn’t mean you really can’t afford it. “
I’ve spent my 20 years making the most of credit cards, taking payday loans and saving over a thousand dollars in overdraft fees. And I have to disagree with Metcalfe: if you cannot afford consumer goods in advance, you definitely cannot afford them on credit.
I don’t understand how a product like Affirm could have helped me recover from my bad credit history, rather than just dragging me deeper into debt. Improving credit transparency does not solve the whole problem. I didn’t go into debt just because the fees were hidden; I went into debt because I had the opportunity.