Personal Loans

What Is Point-of-Sale Financing? Understanding Buy Now, Pay Later Loans

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Online shopping gives you the power to compare prices and buy whatever you need from the comfort of your own home. Within the past few years, point-of-sale financing companies like Affirm and Afterpay have cropped up promising “buy now, pay later” agreements to help you finance those online purchases, too.

Point-of-sale (POS) financing companies can help you afford big purchases by breaking them into smaller payments over several months, but you should read the terms carefully before consenting to this type of agreement. Some point-of-sale installment loans carry APRs of up to 30%, although you may qualify for an interest-free installment plan.

How point-of-sale lending works

Point-of-sale (POS) financing is when a retailer gives you the option to break your purchase into monthly installments at checkout through a third-party financing company. Companies like Klarna, Affirm and Afterpay promote “buy now, pay later” agreements in the form of small loans, lines of credit or interest-free installment plans upon checkout — these are all types of POS financing.

Not all stores offer POS loans or installment plans, but many do. You may be able to borrow money to finance electronics, home fitness equipment, clothing, furniture or even plane tickets at retailers like Walmart, Dillard’s, American Airlines and Apple. But before you turn to POS financing, ask yourself:

  • Is it possible to save up for this purchase and pay in full?
  • Is this financing plan worth the fees?
  • Can I afford the payments? What happens if I miss a payment?

Consider the benefits and drawbacks of point-of-sale financing:

Pros Cons
  • Interest-free options. Some stores and POS loan companies offer 0% APR if payments are made on time.
  • Convenience. Point-of-sale loans are offered at checkout, and the application process is typically simple.
  • May not require a credit check. For example, using Afterpay, Bread SplitPay or Quadpay will not impact your credit.
  • Can be expensive. APRs can be upwards of 30%.
  • Risk of overspending. Just because you can finance a product over several months doesn’t make it affordable.
  • Approval process. You may need to meet certain credit score or income requirements to qualify.
  • Late fees. Some companies charge late fees.
  • Credit reporting. Missed payments may be reported to the credit bureaus.
  • Debt collection. You’re entering a legal agreement, so the financing company may sue you to claim the money owed.
  • Returns. When you go through a third-party POS financing company, it might be more difficult to get a refund on an item.

5 point-of-sale loan companies

Every POS financing company has its own unique set of terms and conditions. For example, you may be able to secure an interest-free installment plan using Afterpay or Quadpay, but the entire balance will have to be repaid in just six weeks to avoid late fees.

Some POS loans, like the ones offered by Affirm and Bread, may accrue interest. Plus, POS companies may report missed payments to the credit bureaus or even send your debt into collections, which could cause your credit score to drop.

Here are five companies that offer small purchase financing upon checkout:

Comparing POS finance providers
What is it? APR Promotional financing Late fees
Affirm Unsecured loan 0.00% to 30.00%
  • 0% APR promotion is available at certain retailers.
  • None
Afterpay 4-part installment plan N/A
  • Interest-free when paid on time.
  • Start at $10, but cannot exceed 25% of the purchase price.
Bread 4-part installment plan (SplitPay)
-OR- Unsecured loan (Installments)
0% to 29.99%*
  • SplitPay installment plan is interest-free.
  • Unsecured loans start at 0% APR.
  • Unspecified late fees may be incurred.
Klarna 4-part installment plan
-OR-
Pay in 30 days
-OR-
Klarna credit account
N/A or 19.99%*
  • 4-part installment plan is interest-free when paid on time.
  • Pay in 30 days option lets you put off payment without interest for 30 days.
  • Klarna credit account charges deferred interest, so no interest is charged if paid on time.
  • Up to $7 per missed payment for the 4-part installment plan and the pay in 30 days option.
  • Up to $35 for the Klarna credit account, plus you will be charged deferred interest dating back to the date of purchase at 19.99% APR.
Quadpay 4-part installment plan N/A*
  • Interest-free when paid on time.
  • Up to $7 per late payment. Up to 3 late fees may be charged.

*APR accurate as of October 27, 2020

Affirm

Affirm offers small unsecured personal loans at checkout when you shop through select retailers. Personal loans let you break up large purchases into fixed monthly payments. And with fixed interest rates, you’ll always know how much you owe.

Affirm’s APRs range from 0.00% to 30.00%, although certain retailers may offer a promotional 0% APR option. Select stores also offer AffirmGo, which lets you finance orders less than $250 in three installments with 0% APR. Traditional Affirm loans typically last three, six or 12 months, but they could be longer or shorter depending on the loan amount.

It’s important to understand how APRs can affect the cost of borrowing. Here’s an example of how a small loan with a 10% APR compares to one with a 30% APR:

Cost of a small loan: 10% APR vs. 30% APR
Loan amount $725 $725
Loan length 12 months 12 months
APR 10% 30%
Monthly payment $64 $71
Total cost of loan $765 $848
Total interest paid $40 $123
Source: LendingTree

Lower APRs are typically reserved for borrowers with good credit, while borrowers with bad credit may get loan offers with up to 30% APR, if they’re approved at all.

Key takeaways

  • Loan APRs can be high, up to 30.00%
  • Select retailers offer promotional 0% APR financing
  • Range of loan lengths, up to 48 months (for larger purchases)
  • Accepted at a wide range of retailers, like Walmart.com
  • No late fee, annual fee, loan origination fee or prepayment penalty

Does Affirm affect your credit score? You can see if you prequalify for Affirm financing with a soft credit check, which will not affect your credit score. If you make a purchase with Affirm, then your credit score may be affected. Affirm reports missed or late payments to Experian.

Afterpay

Afterpay offers installment plans that let you break up a purchase into four equal payments that are due every two weeks, all without charging any interest. This isn’t a loan or a line of credit, but it’s sometimes referred to as alternative financing or simply installment financing. Once you link your credit or debit card with your Afterpay account, your payments will be automatically withdrawn when they’re due.

One drawback to using Afterpay is the late fee. Since Afterpay requires that you link a card for automatic withdrawal payments, you’d only be charged a late fee if the payment is unable to be processed on or before the due date — if your card is declined due to insufficient funds, for example.

See more about Afterpay’s late fees in this table:

Afterpay late fee structure
Orders below $40 One $10 late fee may be applied per order.
Orders $40 and above Initial late fee is $10, plus another $7 fee per week the payment is late. Total late fees are capped at 25% of the original order value or $68, whichever is less.

With these interest-free installment plans, be careful not to overborrow. These agreements come with relatively short repayment periods — just six weeks. So don’t make a purchase that you wouldn’t be able to repay on such an aggressive schedule.

Key takeaways

  • Interest-free financing of four equal payments when paid on time
  • Short repayment period of just 6 weeks
  • Accepted at a wide range of retailers, particularly apparel and beauty stores
  • Late fees start at $10 but cannot exceed 25% of the purchase amount

Does Afterpay affect your credit score? Afterpay doesn’t require a hard credit check. Instead, Afterpay’s eligibility criteria is based on your spending history, looking at factors including the transactions on the card you’ve linked with Afterpay, the length of time you’ve been a customer with Afterpay and the value of your order.

Bread

Bread financing offers both loans and four-part installment plans. Bread Installments is the company’s unsecured loan offering, while Bread SplitPay is the interest-free installment plan option. Compare the two in the table below:

Bread SplitPay vs. Bread Installments
SplitPay Installments
What is it? Interest-free installment plan that lets shoppers split small purchases into 4 equal payments, paid every 2 weeks. Personal loan to be repaid in monthly installments that’s offered to shoppers with more expensive purchases.
APR 0% 0.00% to 29.99%
Financing amount $50 to $1,000 Up to $20,000
Loan length 6 weeks 3 to 48 months

Bread SplitPay could be a viable financing option for small purchases, since you won’t have to pay interest. One caveat, though: Six weeks is a short repayment period, and it might not be possible for a consumer to repay the entire amount by the time the payments are due.

Bread Installments may charge interest, which increases the cost of your purchase. Before you take out a loan with Bread, review the terms to ensure you’re getting a competitive APR. Prequalifying for a loan with Bread won’t impact your credit score. However, Bread does report missed payments to TransUnion.

Key takeaways

  • Offers both a personal loan option (Installments) and an interest-free installment plan (SplitPay)
  • High loan limit, up to $20,000 for the personal loan
  • Installment loan APRs can be high, up to 29.99%
  • SplitPay has a short repayment period of just 6 weeks
  • You may still be stuck paying accrued interest if you make a return
  • No prepayment penalty, but late fees may be incurred

Does Bread financing affect your credit score? Checking out with Bread SplitPay will not affect your credit score. However, Bread Installments financing determines eligibility based on your credit report through TransUnion, which will affect your credit.

Klarna

Klarna offers three POS financing options:

Interest-free installment plan: Similarly to other POS financing companies, Klarna offers an interest-free installment plan that allows you to break your purchase into four equal payments to be repaid every two weeks over a six-week period.

Pay in 30 days: As the name suggests, this option lets you put off your payment for 30 days, so you can try out your item before your card is charged. The payment period begins after your order is shipped.

Revolving credit plan: Klarna offers 6 to 36-month financing that functions like a revolving line of credit with deferred interest special financing. This means Klarna won’t charge any interest if you pay the entire balance by the due date every month, but it will charge a 30.00% APR back to the date of purchase if you don’t. You may also be charged a late payment fee of up to $35.

Key takeaways

  • Offers interest-free installment plans, 30-day payment plans and revolving lines of credit
  • Late fees range from $7 to $35, depending on the financing type
  • Accepted at a wide range of retailers, particularly clothing outfitters

Does Klarna affect your credit score? Pay in 30 days and the four-part installment plan may require a soft credit check, which does not impact your credit score. Klarna revolving credit requires a hard credit inquiry, which will affect your credit score.

Quadpay

Quadpay lets you break up your purchase into four interest-free installments, which are automatically withdrawn from your account every two weeks over a six-week period. As with Afterpay, you link your credit or debit card with your account and your payments will be automatically withdrawn on the due date.

The QuadPay app also offers a virtual QuadPay Visa Card that allows you to break up a purchase into four installments anywhere Visa is accepted. Using the QuadPay app incurs a convenience fee of $1 per installment payment, plus it may require a down payment. See the example below:

Financing using the QuadPay app
Your order $250
Down payment $50
Due today $51+$50
Due in 2 weeks $51
Due in 4 weeks $51
Due in 6 weeks $51
Total due today $101
Total amount paid $254

QuadPay lets you finance small purchases without charging interest, but keep in mind that you’ll have to pay a late fee if your payment isn’t properly processed. Late fees can be up to $7, although that amount may vary depending on the state where you live. QuadPay will charge a max of three late fees per purchase.

Remember, with these short-term financing options, use discretion when borrowing money. You’ll have to pay the entire amount within six weeks, so don’t make any purchases that you can’t afford to repay in that period.

Key takeaways

  • Interest-free financing of four equal payments when paid on time
  • QuadPay app can split purchases into four installments anywhere Visa is accepted
  • Short repayment period of just 6 weeks
  • Accepted at a wide range of retailers, particularly apparel and electronics stores
  • Late fees are up to $7, with a maximum of three late fees per order

Does Quadpay affect your credit score? No, Quadpay does not perform a credit check. Instead, QuadPay determines eligibility using an automated system that takes several factors into account, such as the amount of money available in your linked bank account and your history with QuadPay.

Alternatives to point-of-sale loans

Point-of-sale financing isn’t a good fit for all consumers. Before you borrow money to pay for an online purchase, consider the alternatives:

Saving up and paying in full

There’s virtually no harm in financing a small purchase if you’re not paying interest and you’re confident in your ability to repay the financing company, but it may simply not be worth the trouble to bother with POS financing. When all is said and done, all POS financing has at least some risk associated with it, even if that’s just being charged a late fee.

Consider this example: If you’re considering buying a $500 mattress using a four-part installment plan with zero interest, there’s really nothing wrong with that — especially if you need the mattress but don’t have the time to save up. However, it might just be better to spend the next six weeks saving up $500 and buying the mattress without financing it, if possible.

The problem with POS financing comes when you rely on these installment loans and you aren’t confident in your ability to come up with the balance when it’s due. Or, if you’re relying on taking out debt that costs you money in interest payments.

Consider a different scenario: You’re financing a $1,200 refrigerator, and you get an offer from a POS lender to pay the total over a year at 15% APR. In total, the loan would cost you $1,300 — that’s $100 paid in interest alone. You’ll save money on interest if you budget in advance and pay the entire amount when you’re ready to make a purchase.

Take a close look at your finances before you finance a purchase, even if it’s interest-free. If you need some budgeting help, consider downloading a budget app for your smartphone.

Credit cards

It’s not typically a smart idea to finance large purchases using a credit card, because credit cards charge compounding interest on purchases that aren’t paid off by the time the statement balance is due. However, prime credit borrowers who qualify for an introductory 0% APR offer may be able to break up a large purchase into multiple payments without paying interest at all.

Introductory APR periods are offered to entice consumers into opening a new credit card. Keep in mind that these promotions are typically reserved for people with good credit, and some credit cards charge annual fees.

If you wanted to finance a large purchase using an introductory 0% APR offer, follow these steps:

  1. Research credit cards with an active intro APR offer.
  2. Check your credit score to determine if you’re a good candidate for any of these cards.
  3. If you are, you can apply for one. This requires a hard credit inquiry, which will affect your credit score.
  4. Purchase the item you wish to finance on your new credit card.
  5. Pay off the balance before the promotional period ends.

Before you rush to open a credit card, compare your financing options:

POS financing vs. credit cards
POS financing Credit cards*
Financing amount Up to $20,000, but typically much smaller (bigger loans are more likely to come with interest) Median credit limit is about $20,000, but depends on income and credit history
Typical APR 0% to 30% 15% to 25%
Length of financing 6 weeks to 48 months Revolving, but introductory 0% APR offers can last up to 20 months
Potential fees Late payment fee, convenience fee Annual fee, late payment fee
Credit requirements May be able to get an installment plan with no credit check 0% APR intro offers are reserved for borrowers with good credit
*According to most recent CompareCards data

Traditional personal loans

A personal loan is a lump-sum loan with a fixed APR that’s repaid in fixed monthly payments. Personal loans are typically unsecured, meaning they don’t require collateral. Because of this, unsecured personal loans typically come with higher interest rates.

Some types of POS financing, such as the loans offered by Affirm and Bread Installments, function in similar ways to personal loans, since they have fixed interest rates and installment repayment plans. But whereas POS financing is only offered at certain retailers, personal loans can be used to pay for virtually anything.

There’s one big benefit that POS financing has over personal loans: Some POS financing companies offer no-interest financing. With a personal loan, you’ll always have to pay interest. Personal loan APRs vary greatly depending on your credit score and debt-to-income ratio, among other factors.

Take a look at some of the key differences in the table below:

POS financing vs. traditional personal loans
POS financing Traditional personal loans
Financing amount Up to $20,000, but typically much smaller (bigger loans are more likely to come with interest) $1,000 to $50,000, typically
Typical APR 0% to 30% 10% to 25% or more
Length of financing 6 weeks to 48 months 12 to 60 months, typically
Potential fees Late payment fee, convenience fee Loan origination fee, late payment fee
Credit requirements May be able to get an installment plan with no credit check Fair or higher, but prime borrowers will get the best terms, such as a low APR

Tip: If you decide to take out a personal loan, make sure you shop around for the lowest possible APR for your financial situation. LendingTree’s personal loan marketplace lets you compare offers from up to five lenders, depending on your eligibility as a borrower.

 

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