Katapult vs. Affirm: Unpacking the Buy Now, Pay Later Landscape

No, Katapult and Affirm are not the same. While both operate within the Buy Now, Pay Later (BNPL) space, they cater to different segments of the market and employ distinct business models. Affirm focuses primarily on prime and near-prime consumers with good to fair credit scores, offering traditional installment loans. Katapult, on the other hand, targets non-prime consumers, often with limited or damaged credit histories, through a lease-to-own (LTO) model.

Understanding the Core Differences

The fundamental distinction lies in the financing mechanism. Affirm provides a loan with a fixed interest rate and repayment schedule. You borrow money, you pay it back with interest, and you own the product outright from the start. Think of it as a digital credit card installment plan.

Katapult operates differently. It doesn’t extend credit in the conventional sense. Instead, it enters into a lease agreement with the customer for the item. The customer makes periodic payments for a set period, and only gains ownership of the item after fulfilling all lease obligations, which often includes a final purchase option. This model allows Katapult to serve a customer base that might not qualify for traditional financing.

Target Audience and Creditworthiness

Affirm’s success relies on assessing the creditworthiness of its applicants. They perform a credit check and offer financing based on factors like credit score, payment history, and debt-to-income ratio. This enables them to offer lower interest rates and longer repayment terms to qualified borrowers.

Katapult’s niche is the non-prime consumer segment. They understand that traditional credit scoring can exclude a significant portion of the population, often due to past financial difficulties or limited credit history. Their LTO model allows them to offer access to goods even to those with low or no credit scores. While they still assess risk, they rely more on alternative data and flexible underwriting criteria.

Cost of Financing: APR vs. Lease Costs

The Annual Percentage Rate (APR) is the standard measure of the cost of borrowing money. Affirm’s APRs vary based on the customer’s creditworthiness, the merchant offering Affirm, and the loan term. Generally, expect APRs ranging from 0% to 36%.

Katapult doesn’t use APR in the traditional sense. Instead, the cost is expressed through the total lease amount, which includes the initial price of the item plus lease fees and charges. This total amount is often significantly higher than the original retail price, reflecting the increased risk associated with the non-prime market and the nature of the LTO agreement. The longer the lease term, the higher the total cost. It’s crucial for consumers to carefully evaluate the total cost of ownership under a Katapult lease compared to other financing options.

Product Range and Merchant Partnerships

Affirm has partnered with a broad range of merchants, from major retailers like Walmart and Amazon (in some cases) to smaller online stores, across various categories including electronics, apparel, home goods, and travel. Their partnerships are designed to offer BNPL options at the point of sale, making it easy for customers to finance purchases.

Katapult focuses on specific sectors, particularly furniture, electronics, and appliances. Their merchant partnerships are often with retailers who cater to the non-prime market or offer products that are essential for daily living. While their merchant network is growing, it’s generally smaller than Affirm’s.

Ownership and Repossession

With Affirm, you own the item immediately upon purchase. If you fail to make payments, Affirm may report the delinquency to credit bureaus, which can negatively impact your credit score. In severe cases, they may pursue legal action to recover the debt.

With Katapult, you only own the item after completing all lease payments or exercising the purchase option. If you fail to make payments, Katapult can repossess the item. This is a crucial difference, as the risk of losing the item is higher with Katapult’s LTO model.

Impact on Credit Score

Using Affirm responsibly can positively impact your credit score by demonstrating responsible repayment behavior. Late or missed payments, however, will negatively affect your credit score.

Katapult typically does not report payment activity to the major credit bureaus unless you fall behind on payments and the account is sent to collections. This means that on-time payments with Katapult generally won’t help build your credit score. However, defaulting on a Katapult lease can still negatively impact your credit if the debt is sent to collections.

Financial Implications and Responsible Usage

Both Affirm and Katapult offer convenient ways to finance purchases, but it’s crucial to use them responsibly. It is imperative to consider the following:

• Understand the terms: Read the fine print of the loan or lease agreement carefully, paying attention to interest rates, fees, and repayment schedules.
• Assess your ability to repay: Ensure you can comfortably afford the monthly payments without sacrificing essential expenses.
• Compare options: Explore other financing options, such as credit cards or personal loans, to see if you can get a better interest rate or repayment terms.
• Avoid overspending: Resist the temptation to purchase items you don’t need just because financing is available.

Frequently Asked Questions (FAQs)

1. Does Affirm require a credit check?

Yes, Affirm performs a credit check to assess your creditworthiness and determine your eligibility for financing.

2. Does Katapult require a credit check?

While Katapult may run a soft credit inquiry, their approval process relies less on traditional credit scores and more on alternative data and internal scoring models. This means you can be approved even with limited or damaged credit.

3. What happens if I return an item purchased with Affirm?

The return process depends on the merchant’s return policy. If the return is accepted, Affirm will credit your account accordingly, reducing your loan balance or issuing a refund.

4. What happens if I return an item leased through Katapult?

Returning an item to Katapult terminates the lease agreement. You will no longer be obligated to make future payments, but you will not receive a refund for any payments you have already made. You will also not own the item.

5. Can I pay off my Affirm loan early?

Yes, you can typically pay off your Affirm loan early without penalty. Doing so will save you money on interest charges.

6. Can I pay off my Katapult lease early?

Yes, Katapult offers an early purchase option. You can purchase the item before the end of the lease term, typically at a discounted price. The discount may not be significant, so carefully consider the total cost.

7. What interest rates does Affirm offer?

Affirm’s interest rates vary based on your creditworthiness and the merchant offering Affirm. Rates can range from 0% to 36% APR.

8. What are the eligibility requirements for Affirm?

Eligibility requirements typically include being a U.S. resident, being of legal age (usually 18 or 19, depending on your state), and having a verifiable bank account and a social security number.

9. What are the eligibility requirements for Katapult?

Katapult’s eligibility requirements are less stringent than Affirm’s. Generally, you need to be 18 years or older, have a source of income, and a valid checking account or debit card.

10. Are there any hidden fees with Affirm?

Affirm does not charge hidden fees, such as late fees or prepayment penalties. However, failing to make payments on time can negatively impact your credit score.

11. Are there any hidden fees with Katapult?

Katapult’s fees are typically disclosed upfront in the lease agreement. However, be sure to carefully review all terms and conditions to understand the total cost of ownership, including lease fees, taxes, and potential late payment charges.

12. Which is better, Affirm or Katapult?

The “better” option depends entirely on your individual circumstances. If you have good credit and want to own the item outright from the start, Affirm is likely the better choice. If you have limited or damaged credit and need access to essential goods, Katapult may be a viable option, but be aware of the higher overall cost. Always compare both to other options such as layaway plans, or saving up to pay cash.