Affirm's 0% APR Loans Play: Smart Growth Driver or Profitability Risk?

Affirm Holdings, Inc. AFRM is taking bold steps on its 0% annual percentage rate (APR) monthly installment loan offerings. This move reflects its goal of tapping into more consumer spending and expanding its presence in the Buy Now, Pay Later (BNPL) space. The company is positioning itself as a more consumer-friendly alternative to traditional credit cards by eliminating interest costs, which attracts consumers, especially younger shoppers who are cautious about accumulating revolving debt.

AFRM aims to transform first-time users into loyal and repeat customers by focusing on affordability and value. This strategy helps ease the checkout process for big-ticket purchases, where shoppers might think twice without an interest-free option. Additionally, it earns fees from merchants for facilitating sales, which are generally higher on 0% APR financing products.

In the fourth quarter of fiscal 2025, the gross merchandise volume (GMV) from its 0% APR monthly installment loans rose 93% year over year. It also made 0% APR offers on the Affirm Card more visible and accessible, which resulted in more than tripling the 0% APR GMV on the card compared to the prior-year quarter. Additionally, spending from in stores using the Affirm Card surged 187% year over year in the same quarter, which suggests that consumers are eager for interest-free installment options.

However, offering products with a 0% APR can compress margins, which may hurt profitability as it yields a lower return than interest-bearing loans. If the company can effectively boost transaction volumes and deepen merchant adoption, the trade-off could ultimately support long-term growth and strengthen its position in the BNPL market.

How Are Competitors Faring?

Some of AFRM’s competitors in the BNPL space are PayPal Holdings, Inc. PYPL and Sezzle Inc. SEZL.

PayPal has 438 million active accounts in second-quarter 2025. PayPal’s net revenues increased 5% year over year in the second quarter of 2025. Its total payment volume rose 6% year over year in the same period.

Sezzle’s GMV surged 74.2% year over year in the second quarter of 2025. Its total transactions rose 62.6% year over year to 8.2 million, with the repeat usage rate of 96.4% in the same period. Sezzle’s active consumers rose 9.5% year over year in the second quarter of 2025.

Affirm’s Price Performance, Valuation & Estimates

In the year-to-date period, AFRM’s shares gained 35% compared with the industry’s rise of 19.5%.

From a valuation standpoint, AFRM trades at a forward price-to-sales ratio of 6.52, above the industry average of 5.68. AFRM carries a Value Score of F.

The Zacks Consensus Estimate for Affirm’s fiscal 2026 earnings implies 400% growth from the year-ago period. The consensus mark for fiscal 2026 revenues indicates 19.6% year-over-year growth.

Affirm currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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