Can I Pay Off an Affirm Loan Early and Save Money?
Navigate Affirm loan repayment options to understand how payment choices influence overall cost and financial outcomes.
Affirm provides point-of-sale loans, allowing consumers to purchase goods and services and pay over time. These unsecured loans are offered directly at the checkout of various online and in-store retailers. Understanding repayment terms and early payment options is important for managing personal finances.
Affirm’s Early Payment Policy
Borrowers often wonder if paying off loans early saves on interest. Affirm permits borrowers to pay off their loans early without incurring any prepayment penalties. This policy stems from Affirm’s simple interest model.
Under this model, interest is calculated daily on the outstanding principal balance. This differs from precomputed interest loans, where total interest is fixed regardless of early repayment. Because interest is not precomputed, early payments directly reduce the principal balance, lowering total interest accrued over the loan’s life.
Making an Early Payment
To make an early payment, borrowers can access their account via the Affirm mobile application or website. After logging in, individuals should navigate to their list of active loans to select the specific loan they wish to pay down or pay off. The interface typically presents clear options for managing loan payments.
Within the selected loan details, users will find options to make a payment, which may include paying the next scheduled installment, making an additional principal payment, or paying off the entire remaining balance. Paying the full remaining balance will calculate the exact amount due, including any accrued interest up to that day. If a borrower opts to make an additional principal payment, this amount will be applied directly to reduce the outstanding principal, separate from the regular scheduled payment.
After selecting the desired payment amount and type, borrowers proceed to confirm the payment details and choose a payment method, such as linking a bank account or using a debit card. Confirming the transaction processes the payment, and the loan balance is updated accordingly. This process ensures that any early payments are promptly reflected, providing transparency in the remaining loan obligation.
Understanding Interest Calculation
Interest is calculated on a simple daily basis, meaning that each day, a small fraction of the annual interest rate is applied to the current outstanding principal balance. For example, if a loan has a 20% annual percentage rate (APR), the daily interest rate would be approximately 0.0548% (20% divided by 365 days). This daily rate is then multiplied by the remaining principal to determine the interest accrued for that specific day.
When a borrower makes a payment, whether it is a regularly scheduled installment or an early additional payment, the funds are first applied to cover any interest that has accrued since the last payment. The remaining portion of the payment then directly reduces the outstanding principal balance.