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AP Business Case Study · Unit 3, Task 2

Affirm: Buy Now, Pay Later and the Question of Credit

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Unit 3 · Borrowing, Credit, and Debt

A real-company case study for Unit 3, Task 2 of AP Business with Personal Finance, written in the same format as the course's business cases. Read the case, answer each question on your own, then open the sample answers to check your thinking. Facts are current as of October 2026, and every source is listed at the bottom.

The Case

Unit & taskUnit 3, Task 2: Borrowing, Credit, and Debt
Topic3.2
Key peopleMax Levchin (Founder and CEO of Affirm (and a co-founder of PayPal))
Case years2012–2026 · Evaluation case
Key questionHow does Affirm decide who can borrow at checkout and make money without late fees, and what should consumers consider before using buy now, pay later loans, especially several at once?
Business Canvas componentsCustomer, Product, Finance
Snapshot
  • Business: Affirm Holdings, Inc., a buy now, pay later lender and payment network
  • Industry: Financial technology (consumer lending and payments)
  • Founded: 2012
  • Headquarters: San Francisco, California
  • Key people: Max Levchin, founder and CEO
  • Ownership/Status: Public company (Nasdaq: AFRM) since January 2021; 27.8 million active consumers as of June 30, 2026

A Different Button at Checkout

Picture a $400 purchase in an online shopping cart, with a choice next to the credit card box: pay over time with Affirm. Affirm’s own website uses a $400 price to show how its loans work. With Pay in 4, the shopper splits the cost into four interest-free payments of $100, one every two weeks. With a monthly plan, the shopper might instead pay $80 down and then $28.88 a month for 12 months at a 15% annual percentage rate (APR). Affirm says rates run from 0% to 36% APR based on credit, and options depend on the purchase amount and the store.

Affirm was founded in 2012; its founder and CEO, Max Levchin, was a co-founder of PayPal. The company says its mission is to deliver honest financial products that improve lives. On the day Affirm’s shares began trading on the Nasdaq stock exchange in January 2021, after the company priced them at $49 each, Levchin told CNBC, “Our goal is to be a viable alternative to credit cards.” Affirm then worked with about 6,500 retailers and had more than 6.2 million users.

One Purchase, One Decision

Affirm says it underwrites every transaction individually, deciding each time whether to lend for that purchase and on what terms. According to its 2026 annual report, Affirm looks beyond traditional credit scores at information such as a person’s transaction history and credit usage, along with how that person has repaid Affirm in the past. For a new customer, its model turns basic identifying details and purchase information into more than 1,000 data points, usually within seconds. Repeat customers, whose history Affirm knows, drove 96% of its transactions in fiscal 2026.

In January 2025, the Consumer Financial Protection Bureau (CFPB), a federal agency, published research using data from six large buy now, pay later (BNPL) lenders, including Affirm. It found that nearly two-thirds of BNPL loans went to borrowers with lower credit scores and that, in 2022, the lenders approved 78% of loans for applicants with subprime or deep subprime scores.

Who Pays for “Interest-Free”?

Affirm says it has not charged a single late fee since its founding, and it does not charge deferred or compounding interest; its interest-bearing loans carry only simple interest. Its website contrasts Affirm with credit card companies, saying its business does not rely on customers missing payments or carrying debt. Instead, stores typically pay Affirm a fee when it helps them complete a sale, and Affirm generally earns larger merchant fees on 0% APR plans. Interest paid by shoppers on interest-bearing plans was Affirm’s largest source of revenue in fiscal 2026 (the 12 months ended June 30, 2026). Affirm also earns network fees when its cards are used, including the Affirm Card, a debit card that lets people pay in full or apply to pay over time. It also sells loans to investors and earns servicing income (see the exhibit).

The model has grown quickly: shoppers made $50.2 billion in purchases through Affirm in fiscal 2026, up from $36.7 billion a year earlier. By June 30, 2026, Affirm had 27.8 million active consumers, about 571,000 active merchants, and 5.2 million active Affirm Card holders. Its annual report warned that losing Amazon or Shopify as partners would hurt the business. It reported an operating profit of $417.0 million for fiscal 2026, after an operating loss of $87.3 million the year before.

When Small Loans Stack Up

The CFPB’s 2025 research found that 21.2% of consumers with a credit record used BNPL at least once in 2022. About 63% of BNPL borrowers had more than one loan going at the same time at some point that year, 33% borrowed from more than one BNPL company, and about 20% took out more than one BNPL loan a month on average. For borrowers ages 18 to 24, BNPL made up 28% of their unsecured consumer debt during the months they borrowed. The CFPB also pointed out a blind spot: since most BNPL loans never reached the big nationwide credit bureaus, it was hard to tell how many people were juggling several at once.

Affirm chose a different path from most BNPL lenders. In April 2025, it expanded its credit reporting to cover all of its BNPL loans, and by November 2025 it was reporting all of its U.S. loans to Experian and TransUnion, two of the three major bureaus. But reporting a loan is not the same as counting it. In a November 2025 explainer, Affirm said that, at the time, only consumers could see these loans in their own credit files. Lenders would not see most Affirm activity from April 1, 2025, onward, and the loans were not being factored into credit scores. So, Affirm said, paying on time was not raising scores and missed payments were not lowering them; it called for industrywide standards. In June 2025, FICO, a credit-scoring company, announced FICO Score 10 BNPL and FICO Score 10 T BNPL, its first scores designed to include BNPL data, which lenders could choose to use.

New Rules, and Where Things Stand

In May 2024, the CFPB issued an interpretive rule that applied federal credit card rules under the Truth in Lending Act to BNPL loans, including the right to dispute charges and get refunds. After a fintech trade group challenged it in court, the CFPB withdrew the rule, along with several other guidance documents, on May 12, 2025. States have since acted on their own. New York passed a BNPL law in May 2025, and in July 2026 its financial regulator formally proposed rules to carry it out. Under the proposal, BNPL lenders would need a state license, would have to assess a borrower’s income and debts, could not charge interest above New York’s 16% cap, and would need approval to charge penalty fees above $8. As of August 2026, the rules were still proposed; the law takes effect only once they are adopted. Illinois has also enacted a BNPL law. Affirm’s 2026 annual report said it was monitoring these and other states and evaluating how the laws apply to it.

In August 2026, Affirm forecast more than $64 billion in purchases through its platform for fiscal 2027, which ends June 30, 2027. Its 30-day-plus delinquency rate on monthly installment loans (a measure that leaves out loans made through Peloton) was 2.5% at June 30, 2026, slightly higher than a year earlier. For shoppers, the question remains: is splitting a payment a smart way to fit a purchase into a budget, or an easy way to take on more debt than they can track?

Exhibit 1: Affirm by the numbers, fiscal years 2025 and 2026 (years end June 30)
MeasureFiscal 2025Fiscal 2026
Gross merchandise volume (GMV): total purchases made through Affirm$36.7 billion$50.2 billion
Interest income (paid by consumers on interest-bearing loans)$1,608.2 million$2,047.5 million
Merchant network revenue (fees paid by stores)$882.7 million$1,149.9 million
Gain on sales of loans (from selling loans to investors)$381.6 million$596.6 million
Card network revenue$231.3 million$294.0 million
Servicing income$120.6 million$173.1 million
Total revenue$3,224.4 million$4,261.1 million
Operating income (loss)($87.3 million)$417.0 million
Active consumers (as of June 30)23.0 million27.8 million
Active merchants (as of June 30)376.8 thousand570.8 thousand

Source: Affirm, Fourth Fiscal Quarter 2026 Shareholder Letter (August 27, 2026); Affirm Form 10-K for fiscal 2026. Affirm defines GMV as the total dollar amount of all transactions on its platform and an active consumer (or active merchant) as one that completed at least one Affirm transaction during the 12 months before the measurement date.

Reading Questions

These are the same for every case. They check that you caught the basics before you analyze.

1. Which business does this case feature, and what product or service does it provide?
The case features Affirm, a financial technology company founded in 2012 and based in San Francisco. Affirm provides buy now, pay later loans at checkout: Pay in 4 plans that split a purchase into four interest-free payments every two weeks, and monthly installment loans with rates from 0% to 36% APR based on the shopper’s credit. It also offers the Affirm Card, a debit card that lets people pay in full or apply to pay over time. For stores, Affirm is a way to help shoppers complete purchases, and stores pay Affirm a fee for it.
2. Who are the key people named in the case, and what roles do they play? Which other stakeholders — individuals or groups — have an interest in the business?
Max Levchin is Affirm’s founder and CEO and was one of the co-founders of PayPal. Other stakeholders include the shoppers who borrow through Affirm (27.8 million active consumers as of June 30, 2026), the roughly 571,000 active merchants that offer Affirm, big commercial partners such as Amazon and Shopify, and the investors who buy Affirm’s loans or own its stock. Credit bureaus Experian and TransUnion, the scoring company FICO, and other lenders who rely on credit reports also have an interest, as do regulators such as the CFPB and New York’s financial regulator, the fintech trade group that challenged the CFPB’s 2024 rule, and Affirm’s employees.
3. Identify an opportunity and/or a challenge the business faces in this case.
One opportunity is fast growth: purchases through Affirm rose from $36.7 billion in fiscal 2025 to $50.2 billion in fiscal 2026, the company turned an operating loss of $87.3 million into an operating profit of $417.0 million, and in August 2026 it forecast more than $64 billion in purchases for fiscal 2027. FICO’s BNPL credit scores, announced in 2025, could also eventually help Affirm’s on-time borrowers get credit for good habits. A challenge is changing regulation: New York’s rules, proposed in July 2026, would require BNPL lenders to get a state license, cap interest at New York’s 16% limit (well below the top of Affirm’s 0%–36% APR range), and limit penalty fees, and Affirm said it was evaluating how such state laws apply to its products. Another challenge is credit risk, since many BNPL shoppers stack several loans at once; Affirm’s 30-day-plus delinquency rate on monthly installment loans (excluding Peloton loans) was 2.5% at June 30, 2026, slightly higher than a year earlier.

Practice Questions

These apply the Unit 3 concepts from Task 2 to the case, in the style of AP free-response prompts.

1. Affirm’s website shows two ways to pay for a $400 purchase: Pay in 4 (four interest-free payments of $100 every two weeks) or a monthly plan ($80 down payment, then 12 monthly payments of $28.88 at 15% APR). (a) Calculate the total amount paid and the total interest for each option. (b) Describe one reason a consumer might borrow through buy now, pay later instead of waiting to save the full price, and one reason the consumer might choose the monthly plan even though it costs more.Topic 3.2 · LO 3.2.A
(a) Pay in 4: 4 × $100 = $400 total, so the interest is $400 − $400 = $0. Monthly plan: the amount borrowed is $400 − $80 down = $320; the payments total 12 × $28.88 = $346.56, so the shopper pays $80 + $346.56 = $426.56 in all, and the total interest is $346.56 − $320 = $26.56. (b) Consumers borrow so they can buy something now that their current income and savings don’t cover, such as a laptop needed for school or work, expecting future paychecks to catch up. A shopper might pick the monthly plan because, after the $80 down payment, a $28.88 payment once a month is much easier to fit into a budget than $100 every two weeks, which requires the whole $400 to be paid within about two months. The trade-off is the cost of borrowing: the shopper pays $26.56 in interest for that flexibility, while Pay in 4 costs nothing extra but requires $100 every two weeks.
2. Explain how Affirm evaluates the creditworthiness of a shopper. Then explain how the way BNPL loans were reported to credit bureaus in 2025 could lead another lender, such as a bank making a car loan, to misjudge a borrower’s creditworthiness, using evidence from the case.Topic 3.2 · LO 3.2.B
Creditworthiness is how likely a borrower is to repay on time. Affirm underwrites each purchase individually, looking beyond traditional credit scores at the shopper’s transaction history, credit usage, and past repayment with Affirm (for new customers, its model uses more than 1,000 data points), and it sets an APR from 0% to 36% based on credit. A bank making a car loan relies heavily on the borrower’s credit report and credit score from bureaus such as Experian and TransUnion. Although Affirm reported all its U.S. loans to those bureaus, it said in November 2025 that other lenders could not see most of that activity and that it was not being counted in scores, so a bank could underestimate how much the borrower already owes each month and overestimate the borrower’s capacity to repay. That could lead the bank to approve a loan the borrower cannot afford, a bigger risk because the CFPB found that in 2022, 63% of BNPL borrowers had multiple loans at the same time and 33% used more than one BNPL lender. The gap also hurt responsible borrowers: because on-time Affirm payments were not being counted in scores, they did not add to payment history, the most heavily weighted part of a FICO score (about 35%).
3. Maya, 18, takes home $320 from her part-time job every two weeks. This month she used four-payment plans (four equal payments, one every two weeks) for a $240 pair of headphones through Affirm’s Pay in 4 and for a $160 jacket through a different BNPL app that charges a late fee for missed payments. Now she wants a $400 phone and is considering Affirm’s monthly plan from the case ($80 down, then 12 payments of $28.88). (a) Calculate how much Maya owes every two weeks on her two four-payment loans and what percentage of her take-home pay that is. (b) Recommend a strategy for managing her existing debt and her future use of credit, using evidence from the case.Topic 3.2 · LO 3.2.C
(a) Maya owes $240 ÷ 4 = $60 to Affirm and $160 ÷ 4 = $40 to the other app, a total of $100 every two weeks, which is $100 ÷ $320 = 31.25% (about 31%) of her take-home pay. (b) Maya is already stacking loans from two lenders, like the 33% of BNPL borrowers the CFPB found using more than one BNPL company in 2022, so she should first list every due date and set up autopay from her checking account, making sure she never misses the payment on the app that charges a late fee. She should not take on the phone loan until her current four-payment plans are paid off, because adding a monthly payment would stretch an income that is already about one-third committed. Once the plans are finished, she could move the $100 she was paying every two weeks into savings; after four paychecks she would have $400 and could buy the phone in cash, avoiding the $26.56 in interest on the monthly plan. Going forward, she should use BNPL only for planned needs she could afford anyway, keep the number of loans small, and build an emergency fund. She also should not count on BNPL to build her credit history, since Affirm said in November 2025 that on-time payments were not raising credit scores.

Discussion Questions

Talk these through with a partner or your class. There's more than one good answer, so back yours up with evidence from the case.

  1. Affirm says it has charged $0 in late fees since its founding and that it does not depend on shoppers paying late or staying in debt. Is a lender with no late fees always safer for borrowers? What else could go wrong for a borrower who misses payments?
  2. Affirm generally earns larger fees from merchants on 0% APR plans. Why would a store be willing to pay so that its customers can borrow without interest? Is a 0% APR loan truly free for the shopper?
  3. In November 2025, Affirm said it reported all its U.S. loans to two credit bureaus, but that other lenders could not see most of that activity and it was not being counted in credit scores. Should BNPL loans count in credit scores? Who would benefit, and who could be hurt?
  4. The CFPB withdrew its 2024 BNPL rule in May 2025, and in July 2026 New York proposed its own BNPL rules. Should BNPL loans be regulated like credit cards, regulated by each state, or left mostly to the companies? Use evidence from the case.
  5. Which factor do you think creates the biggest risk for a young person using buy now, pay later? Choose one and support your choice with evidence from the case: (a) how quickly loans are approved at checkout, (b) using several BNPL loans or apps at the same time, (c) BNPL loans not being counted in credit scores, as Affirm described in 2025, or (d) interest rates on monthly plans that can reach 36% APR.

Application Activity

Choose a real item you would like to buy that costs between $200 and $600. Find the price, then compare three ways to pay: (1) saving first and paying cash (calculate how many weeks of saving it would take at an amount you could set aside), (2) a four-payment, interest-free BNPL plan (calculate each payment), and (3) a monthly loan using a rate and term you find from a real lender or a calculator (calculate the total repaid and the total interest). Decide whether to borrow or wait, explain how the purchase fits your budget, and describe how you would avoid missed payments and stacked loans.

Key Takeaways

  • Buy now, pay later is borrowing. Even an interest-free Pay in 4 plan is a loan with a repayment schedule, and Affirm’s monthly plans can add interest, as in the case’s $400 example, where borrowing $320 costs $26.56. Consumers use BNPL to buy now what their income and savings don’t yet cover, while merchants pay fees, especially for 0% APR plans, to help make the sale.
  • Lenders can only judge creditworthiness with the information they have. Affirm evaluates each purchase using its own repayment data along with credit information, while other lenders depend on credit reports and scores. When BNPL loans are reported but not visible to other lenders or counted in scores, as Affirm described in 2025, lenders can underestimate a borrower’s debts, and borrowers who pay on time don’t get credit for it.
  • Managing BNPL debt means managing many small loans at once. The CFPB found that in 2022, 63% of BNPL borrowers had multiple loans at the same time and 33% used more than one lender. Tracking every due date, using autopay, limiting the number of loans, and saving before buying wants are key strategies, especially while federal and state BNPL rules were still changing in 2026.

Use it in your Business Canvas Project

Stores that offer Affirm typically pay it a fee when it helps complete a sale, and Affirm earned $1,149.9 million in merchant network revenue in fiscal 2026. Offering BNPL can help customers afford a bigger purchase but reduces what the business keeps from each sale. If your Business Canvas business sells higher-priced products, decide whether offering a pay-over-time option is worth that cost, and explain how you would make sure customers understand they are borrowing.

For Teachers

Opening activity: Ask students whether they have seen “Pay in 4” or “pay over time” buttons when shopping online, and have them list what people their age might buy that way. Then ask: Is splitting a payment into four parts a loan? How would you decide whether you could afford four payments every two weeks, and who would you need to pay back if something went wrong?

Tip: “Print case” prints the case and all questions with the sample answers hidden, so it works as a student handout.

Sources

  1. Fourth Fiscal Quarter 2026 Shareholder Letter, Affirm Holdings, Inc., 2026-08-27
  2. Form 10-K for the fiscal year ended June 30, 2026, Affirm Holdings, Inc. (U.S. Securities and Exchange Commission), 2026 (fiscal year ended 2026-06-30)
  3. Why Affirm: buy now pay later vs credit cards, Affirm, accessed 2026-10-19
  4. People deserve credit for managing their money responsibly, Affirm Investor Relations, 2025-11-25
  5. FICO Unveils Groundbreaking Credit Scores That Incorporate Buy Now Pay Later Data, FICO, 2025-06-23
  6. CFPB Research Reveals Heavy Buy Now, Pay Later Use Among Borrowers with High Credit Balances and Multiple Pay-in-Four Loans, Consumer Financial Protection Bureau, 2025-01-13
  7. CFPB to Withdraw BNPL Interpretive Rule Amid Broader Agency Rollback, Sheppard Mullin (Consumer Finance & FinTech Blog), 2025-03-28
  8. Buy Now, Pay Later (BNPL) products (compliance resources), Consumer Financial Protection Bureau, last modified 2025-07-01
  9. NYDFS Proposes Rules to Enact Buy Now, Pay Later Statute, Cooley, 2026-08-03
  10. Affirm IPO: AFRM starts trading on Nasdaq, CNBC, 2021-01-13
All Case Studies Review Unit 3 Practice Questions

This case was written for educational use from the public sources listed above. Affirm did not review it and is not affiliated with this site; company names are trademarks of their owners. This resource is independent and not affiliated with or endorsed by College Board.