If You Pay Affirm Off Early, Do You Save Interest?
Does paying your Affirm loan early save interest? Get a clear understanding of how early repayment affects your total cost.
Affirm, a popular “buy now, pay later” service, allows consumers to finance purchases over time. Many individuals wonder if paying off an Affirm loan ahead of schedule can lead to savings on interest charges. Understanding how Affirm structures its loans is important to determine the financial implications of early repayment.
Understanding Affirm Loan Structures
Affirm utilizes two primary loan structures that affect how interest is applied to a financed purchase. One common type is the simple interest loan, where interest is calculated daily on the outstanding principal balance. This means the total interest a borrower pays is directly dependent on the duration the principal remains unpaid.
Another loan structure offered by Affirm is the 0% Annual Percentage Rate (APR) loan. With these loans, no interest is charged to the borrower at all, regardless of the repayment period. Affirm explicitly discloses the interest rate, or lack thereof, before a borrower commits to a loan.
Impact of Early Payment on Interest
For Affirm loans that carry a simple interest rate, paying off the balance early can result in savings on the total interest paid. Since interest accrues daily on the remaining principal, reducing the principal balance faster means fewer days for interest to accumulate.
Conversely, paying off a 0% APR loan early will not result in any interest savings. These loans are structured so that no interest is ever charged from the outset.
How to Make Early Payments
Making an early or additional payment on an Affirm loan is a straightforward process. Borrowers can typically access their loan details by logging into their Affirm account through the official website or mobile application. Within the account, an option to make a one-time payment or pay off the remaining balance in full is usually available.
Accepted payment methods generally include linking a bank account directly or using a debit card. After initiating the payment, borrowers should confirm the amount and ensure it is correctly applied to their loan.
Other Considerations for Early Repayment
One notable aspect of Affirm loans is the absence of prepayment penalties. Borrowers can pay off their loans ahead of schedule without incurring any additional fees for doing so.
Regarding credit scores, while checking eligibility for an Affirm loan typically involves a soft inquiry that does not affect a credit score, the loan itself and repayment activity may be reported to credit bureaus. Consistent, on-time payments, including early payoffs, can contribute positively to a borrower’s credit history. However, the act of paying early does not inherently provide a unique boost to a credit score beyond fulfilling the loan obligation responsibly.