Even if your credit score is among the best in the country, say 775 or even 800, chances are that your credit card still charges more than 13% interest. At a time when 30-year Treasury bonds yield around 2% and high-yield, risky bonds yield 4%, this seems outrageous.
Now one company, Affirm, is making money on this.
The company offers buy now, pay later (BNPL) options for purchases, giving consumers the opportunity to buy a good or service and spread the payment over weeks or months with no interest. Instead, Affirm charges a bit to the vendor, just as credit card companies charge vendors anywhere from 1% to 3%.
The company plans to roll out a new card that will act as both a debit card, pulling money directly from one’s bank, or a credit card, spreading payments over time, with the consumer making the choice at the time of purchase.
Affirm’s card, which it expects to be available later this year.
The card will offer interest-free and simple interest-bearing loans, said CEO Max Levchin, adding that more than a third of U.S. consumers have used a BNPL service with debit transactions accounting for 30% of all payments.
It’s not that interesting for a card to offer either debit or credit functions. Consumers can handle that simply by paying their credit card bill in full at the end of the month, thereby avoiding interest charges. The interesting part is the exceptionally low interest that Affirm has been charging.
While the company quickly scales up the interest it charges for payments that extend for several years, the very low or even zero interest on payments spread over weeks or a few months could force other credit card companies to rethink their exorbitant rates for creditworthy borrowers.