Affirm Falls 10% as Inflation Print Lifts Yields; Klarna Drops 3%, PayPal Barely Budges

A hotter-than-expected inflation report lifted long-term Treasury yields, and Affirm Holdings (NASDAQ:AFRM | AFRM Price Prediction) stock is taking the biggest hit among buy now, pay later (BNPL) lenders. Affirm stock is at $69.99, down 10% in afternoon trading. That slide stands out in a group of consumer lenders and payment platforms that is holding up far better.

At the same time, Klarna (NYSE:KLAR) stock is at $13.01, down 3%, a far smaller decline than Affirm’s slide. Additionally, PayPal Holdings (NASDAQ:PYPL) stock is at $55.95, down 0.4%, barely moving by comparison.

For a read on the wider financial sector, the Financial Select Sector SPDR ETF (NYSEARCA:XLF) is down 0.8%. Across U.S. large caps, the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) is down 1%. The drop in Affirm stock runs multiple times deeper, despite no company-specific news. So, what’s driving the selloff in AFRM stock today?

Hot Inflation Report Lifts Funding Costs

September inflation came in above forecasts, and long-term interest rates rose after the release. Higher yields raise the cost of the capital that installment lenders borrow to fund the loans they write at checkout.

Affirm originates installment loans at the point of sale and funds them through warehouse credit facilities, asset-backed securitizations and forward-flow loan sales to institutional buyers. Its borrowing costs therefore track market rates more closely than a deposit-based or fee-driven business would. In Q3 FY2026, reported on May 7, Affirm’s average cost of funds fell to its lowest level in three and a half years.

Funding Models Split the BNPL Group

Heading into the rate shock, Affirm’s business was humming. During Q3 FY2026, the company lifted revenue 32.6% year over year to $1.04 billion as gross merchandise volume (GMV) climbed 35% to $11.6 billion. Those gains came as funding got cheaper, a trend higher yields threaten to reverse.

Affirm’s delinquencies of 30 days or more rose 29 basis points year over year to 2.8%. Concentration adds another layer, since its top five merchant partners account for 42% of GMV. Broader card data offers some comfort, with bank credit card delinquencies trending lower since late 2024.

Klarna funds itself differently, drawing the large majority of its money from low-cost consumer deposits, and it has applied for a U.S. bank charter. Its Q2 2026 revenue rose 26.6% to $1.042 billion, while transaction margin dollars jumped 42% to $446 million. It lowered its full-year GMV outlook, citing currency translation and softer German retail volumes.

PayPal leans on transaction fees across branded checkout, Venmo and Braintree, so its revenue depends much less on lending spreads. Second-quarter 2026 results showed revenue up 4.8% to $8.68 billion on total payment volume of $486.45 billion. PayPal’s non-GAAP operating margin contracted 248 basis points.

Affirm Faces a Repricing Test

Rising rates squeeze the spread between what Affirm charges borrowers and what it pays to fund those loans. Higher rates can also strain borrowers and lift credit losses.

On the positive side, Affirm’s FY2026 guidance calls for revenue of $4.175 billion to $4.205 billion, and Affirm Card GMV jumped 146% to $2.1 billion in Q3 FY2026. The question is whether Affirm can reprice loans fast enough to protect margins without losing merchants and shoppers.

Additional yield gains after the inflation report could compound that test, while a drop could ease pressure on Affirm’s funding costs. With net cash of $1.35 billion, Affirm has a buffer as that plays out, though investors should limit their exposure while interest rates stay volatile.

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