Payment plans like Affirm and and Afterpay are available on more sites than ever — here's how they work

  • Point-of-sale (POS) loans offer the opportunity to buy a product now and pay for it in installments.
  • POS loans have become increasingly popular for people strapped for cash during the pandemic. 
  • These short-term loans may be beneficial for consumers buying large items.

The concept of “buy now, pay later” has long had appeal. Credit cards make it easy.

But increasingly, people are choosing alternative point-of-sale (POS) lenders to fill that financial gap. More than 40% of American shoppers have used a buy-now-pay-later plan, according to Credit Karma/Qualtrics.

A POS loan is essentially the opposite of layaway. With layaway, you pay for your item over time and then take it home when you’ve cleared your bill. 

With a POS lender, you get your item first then pay for it over a specified period of time. Companies like Affirm, Afterpay, Klarna, and QuadPay are among those offering POS lending.

These services are widely available, too. Some of them are linked to participating retailers, while others can be used at any website.

But like any financial product, it’s important to do a deep dive first to find out if it’s right for you.

How do POS lenders differ from credit cards?

First of all, POS lending is only possible through certain retailers, while credit cards can be used to buy virtually anything. Also, the amount you’re borrowing is based on your purchase with point-of-sale lending, rather than on your credit limit. 

Your loan duration will vary based on the lender; it can be 30 days, a few months, or one or more years. Borrowers make monthly payments until their final payment comes due or they pay off the loan early.

Also, opening a credit card is a hard inquiry that shows up on your credit report, while point-of-sale lending is just a soft inquiry.

Finally, POS lenders are underwriting the borrower on each new purchase, which protects them from extending too much credit. Credit card companies, on the other hand, extend a  line of credit to consumers that renews as the balance is paid off.

Pros vs. cons

Pros of POS loans

  • Good option if you’re looking to make large purchases without a credit card
  • You’ll know how long you’re making payments and when you’ll be debt-free
  • You don’t need a credit history
  • An attractive option for big, one-time purchases like mattresses, furniture, or electronics.

Cons of POS loans

  • Interest rates as high as 30%
  • You may be tempted to overspend 
  • POS lending algorithms don’t place much weight on factors like credit history
  • If you want to return your purchase, you’ll have to work with the retailer
  • Installment programs might impact your credit
  • Your loan may have accompanying fees

Comparing different POS lenders

In many cases, the POS lender you use comes down to where you’re shopping, because retailers use different lenders. Be clear on what each lender offers before signing on for a loan. Each lender is different.

NameAPRTerm lengthLate fees
Between 0% and 30%3 months to 3 yearsNo late fees
 0% 6 weeksCapped at 25% of the order value
0%2 monthsUp to $7 if an automatic payment can’t be collected
0%2 months$5, $7, or $10 depending on your state of residence

When you do have the ability to choose between lenders, it’s important to price shop. Calculate the total cost (including any interest and fees) of purchasing the goods on a credit card with a fixed annual percentage interest rate for the same number of months as your planned installment loan and see which is a better offer.

Is POS lending right for you? 

Just like with credit cards, POS lending can be great if correctly used. Where credit cards can help you build up credit and earn perks and rewards, they’re only good if you’re spending within your means.

The same is true with POS loans. If you’re able to make your monthly payments without going into debt, they can be great for making large purchases. But beware: before you know it, you could have a stack of POS loan bills due every month, and that’s definitely not good for your bottom line.

If you’re in debt, then cash and debit are likely better options. 

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