What Is a Point-of-Sale Loan?

Written by Kim PinnelliUpdated: 21st Mar 2022
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If a large purchase overwhelms you, a point-of-sale loan might help break it down. With payments available in four equal installments, you can spread out the cost of your purchase without hurting your credit or racking up credit card debt.

Here’s everything you must know about the point-of-sale loan.

What Is Point-of-Sale Financing?

Point-of-sale financing is also known as buy now, pay later financing. You buy something now, take it home, but pay for it over time. Typically, you don’t pay interest or fees on the loan as you would with a credit card, but you must pay the amount off within eight weeks, making a payment every two weeks.

How Do Point-of-Sale Loans Work?

You’ve likely seen point-of-sale loans at checkout on your favorite websites. Companies like Affirm and Klarna offer them. You’ll see advertisements that say ‘split your payment into four equal installments,’ and if you’re like most people, you click because who wouldn’t want to spend less out of their own pocket right now?

Use caution, though. MOST buy now, pay later loans have no interest or fees, but not all. The ones that don’t are typically those that require payment within the four installments. Some point-of-sale loans are for longer terms, stretching your payments out over several months. Those loans typically charge interest and fees.

>> More: Does ‘Buy Now, Pay Later’ Affect Your Credit?

How to Get a Point-of-Sale Loan

Getting a point-of-sale loan is easy, sometimes almost too easy. You can usually apply right at checkout, and all you need to provide is your name, address, and date of birth. Most lenders ask for your social security number too.

They’ll look at your information and likely do a soft credit pull. This doesn’t hurt your credit, but it lets the lender see how you handle your debts. You usually get an answer instantly.

If approved, they’ll give you payment options, which usually include the pay-in-4 model, which requires 25% down at checkout and three equal installment payments of 25% of the purchase amount every two weeks. Some lenders have longer options, too, but they usually charge interest.

If you opt into the financing, you’ll provide your debit or credit card to make your first payment, and you’ll have an installment agreement for the remaining amount.

When Should You Use Point-of-Sale Financing?

Point-of-sale financing can be good, but only in certain situations. Because it makes it a lot easier to spend money you don’t have, we recommend you only use it when you need to make a big purchase and don’t have a credit card. If you know beyond a reasonable doubt that the payments fit into your budget and you aren’t spending money you don’t have, it can help you.

If you’re using it for an impulse buy or because you don’t have the money now, but think you might have it moving forward, don’t do it. The risk is too high. Even though the loans usually don’t charge interest, there could be fees and interest charged if you don’t make your payments on time.

Where to Get Point-of-Sale Financing

Affirm

Affirm works with affluent and trendy retailers. Their contracts vary based on the contractor, so don’t assume their loans are always 0% interest. They don’t charge late fees, but you might pay interest up to 30% depending on where you shop.

Afterpay

Afterpay is the buy now, pay later company you likely see the most. It’s in your most common retailers and offered in most online stores. They offer the traditional pay-in-4 model, and you won’t pay interest. They typically require 25% upfront, but they might require a higher down payment if your total is high.

Klarna

Klarna offers a loan you apply for yourself on their mobile app. Once approved, you can shop at your favorite stores, as most common retailers accept it. Klarna doesn’t charge interest and requires purchases to be paid off in 4 equal installments starting at the checkout.

Sezzle

Sezzle is another buy now, pay later company that offers the traditional pay-in-4 model plus longer terms for larger purchases. For the pay-in-4 model, they don’t charge interest or fees. You pay 25% upfront and the remaining amount in equal installments every two weeks.

Pros and Cons of Point-of-Sale Financing

Pros:

  • Instant approval at checkout
  • No or low interest in most cases
  • Borrowers don’t need great credit
  • Short-term loan that’s paid off quickly
  • You borrow exactly the amount of your purchase

Cons:

  • Late fees accrue if you miss a payment
  • Some lenders charge high-interest rates
  • It can complicate returns
  • The terms can be hard to understand and are often misunderstood

Alternatives to Point-of-Sale Loans

#1. Personal Loan

A personal loan comes from your local bank or an online lender. Depending on your qualifying factors, you can usually borrow up to $100,000.

Personal loans are unsecured, so you don’t need collateral, but you’ll usually pay high-interest rates. Personal loans have fixed payments and terms of 2 – 7 years, depending on the lender. You receive the funds as one lump sum and use them how you need.

>> More: Best Personal Loans

#2. 0% APR Credit Card

If you have great credit, you might qualify for a 0% APR credit card. Pay close attention to the dates, though, because the 0% is usually an introductory offer that’s good for a few months to 24 months.

You only owe payments if you charge something, and you can charge as little or as much as you want up to your credit limit. If you carry a balance after the 0% APR period ends, interest accrues at the current rate, so be careful that you don’t wind up with credit card debt.

#3. Borrow Money from Friends or Family

If you need something important and can’t afford it, you can ask family or friends for the money. You can also ask that they charge it on their credit card if they have one and you make the payments. Just be aware of any arrangements you agree to and stick to them. You don’t want to risk your relationship because of a financial mistake.

Is Point-of-Sale Financing Safe to Use?

Point-of-sale financing is safe when you use it right. Don’t just take it because it’s there and allows you to buy something you can’t afford.

When you use it to buy what you need knowing you can make the payments, it can be a great way to stretch out the payments without paying interest.

Why Is Point-of-Sale Financing Risky?

Point-of-sale financing can be risky because it’s almost an invitation to overspend. Like a credit card with no balance, it’s like a blank check asking you to spend it. Don’t do it. Think about why you’re using it and, most importantly, if you can afford the payments.

Bottom Line: What Is a Point-of-Sale Loan?

A point-of-sale loan is a great way to get help financing items you need and can’t pay for upfront. You’ll pay 25% upfront and then spread the payments over the next six weeks. It’s a good way to avoid interest, but always make sure you can afford the payments before accepting it.

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Kim Pinnelli
Kim Pinnelli

Kim Pinnelli is a Senior Writer, Editor, & Product Analyst with a Bachelor’s Degree in Finance from the University of Illinois at Chicago. She has been a professional financial writer for over 15 years, and has appeared in a myriad of industry leading financial media outlets. Leveraging her personal experience, Kim is committed to helping people take charge of their personal finances and make simple financial decisions.