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Guide to Point-of-Sale Loans

Guide to Point-of-Sale Loans
Jason Steele
Jason SteeleUpdated March 12, 2023
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
As you’re shopping online you may see an offer during the checkout process to “buy now, pay later” or apply for a monthly payment plan. These are called point-of-sale loans, or POS loans, and they are becoming more common. Is point-of-sale finance a good idea? Does it make sense for you? Here’s what you need to know.

What Is a Point-of-Sale Loan?

A point-of-sale loan allows you to break down a purchase into several smaller payments, so you can buy it now and pay for it later.  With POS financing, you might apply for a loan at checkout or sign up with a payment platform that has partnered with the retailer. You then repay the loan in installments. The first installment is typically charged to your credit or debit card when you check out.Installment financing like a point-of-sale loan is a type of unsecured loan. A point-of-sale loan may charge no or low interest, or it might come with high interest rates.

Uses for Point-of-Sale Loans

Point-of-sale loans are most commonly used for online shopping. They may be especially useful for big-ticket purchases, like furniture or a TV, that you don’t have the money on hand to pay for. However, you might see a POS financing option for many types of online purchases, including housewares and clothing, and even some airline tickets. 

How Do Point-of-Sale Loans Work?

Three of the biggest point-of-sale loan lenders are Affirm, Afterpay, and Klarna. Each of these companies partners with different retailers and has different terms. With Affirm, your repayment term options and interest rates can change based on the retailer. However, Affirm doesn’t charge late fees. Afterpay’s terms are the same: You make four interest-free installments every two weeks. Afterpay does charge late fees if payments are more than 10 days late. With Klarna, your payment will also be divided into four payments due every two weeks. Klarna doesn’t charge interest but it does charge late fees if it is unable to collect a payment from you after two attempts. You can use the Klarna app to shop online or choose it as your payment option at checkout with certain retailers.Recommended: Understanding the Meaning of In-House Financing

Pros and Cons of POS Loans

Point-of-sale loans have pros and cons that you should consider before applying. 
Pros of POS LoansCons of POS Loans
Some point-of-sale loans charge no interest or minimal interestSome point-of-sale loans charge interest, and it could be high
Point-of-sale loans are typically easy to accessSome point-of-sale loans charge late fees
The application and approval process for point-of-sale loans is usually very quick (usually instantaneous)Some point-of-sale loans charge penalties for paying off the loan early
Point-of-sale loans are typically easier to get approved for than some other funding options. Certain point-of-sale loans can require a hard credit inquiry which may negatively impact your credit score
Point-of-sale loans may be useful for big purchases.You may be tempted to overspend 

Getting Point-of-Sale Financing

Point-of-sale financing is usually offered during the checkout process. To apply for a point-of-sale loan, you will first need to create an account with the lender. This is usually integrated directly into the checkout process. You will need to provide basic personal information and possibly your Social Security number to apply. Some companies will perform a hard credit inquiry, while others only perform a soft credit check. The approval process is usually instantaneous, and point-of-sale loans are typically easier to get approved for than some other funding options.After you input your information, you will see a breakdown of your payment plan options. Many point-of-sale loans divide the balance into four installments. The first installment is often due at checkout. You will input your payment information and billing address, and agree to the terms and conditions. Your credit card or debit card will be charged for the first payment and then it will also be automatically charged the remaining installments until the balance is paid in full. Installments are usually charged every two weeks. 

When Can You Use POS Financing?

You may use point-of-sale finance any time the retailer has an option for it. Since point-of-sale financing is through the retailer, you can’t apply for a point-of-sale loan separately.

Do Point-of-Sale Loans Impact Your Credit?

Point-of-sale loans could have an impact on your credit. Some point-of-sale lenders may require a hard credit inquiry, while others only perform a soft credit check. Be sure to read the fine print before applying to understand how the application will affect your credit. Some point-of-sale companies also report to the credit bureaus. Some companies report all activity, while others only report negative actions like failure to pay. Companies that report all actions may have a positive impact on your credit score if you make payments on time and in full. And any negative actions can have a negative effect on your credit score.

Alternative Options to Point-of-Sale Loans

One alternative to a point-of-sale loan is a personal loan from a bank, credit union, or online lender that can be used for a variety of purposes and repaid in regular monthly payments. There are different types of personal loans. If the small amount of money or the short terms are the factors that appeal to you about a point-of-sale loan, you could look into small personal loans or short-term loansWhile point-of-sale financing can only be used for the purchase of the item you’re buying online, personal loans can be used for a variety of purposes. Some common personal loan uses include medical bills, home renovation, or large purchases. Additionally, while some personal loans allow preapproval, there is no loan preapproval process for point-of-sale loans. You may want to explore the top personal loans of 2022 to see if there is one that fits your needs.Another financing option to consider when you’re making a large purchase is a 0% introductory APR credit card. This allows you to make new purchases without accruing interest for a certain period of time. As long as you pay off the item in full before the introductory period ends, you won’t owe interest. Some 0% APR credit cards have a sign-up bonus so that you may also be able to earn rewards.

The Takeaway

Point-of-sale loans can be an easy and quick way to get financing for a large purchase. However, you should always weigh the pros and cons of point-of-sale loans before applying. For example, is there interest on the POS loan? What about fees? Be sure to read the fine print.If you are considering financing a big purchase with a personal loan instead, Lantern by SoFi can help. In our online marketplace, you can compare rates and terms from multiple lenders at once to find the best option for your needs. It’s convenient, and you can see if you prequalify.Find and compare personal loan options with Lantern.

Frequently Asked Questions

What is the POS fee on my bank statement?
Can a POS transaction be traced?
What are point-of-sale loans?
Photo credit: iStock/mihailomilovanovic

About the Author

Jason Steele

Jason Steele

Jason Steele has been writing about credit cards and award travel since 2008. One of the nation's leading experts in this field, he has contributed to dozens of personal finance and travel outlets and has been widely quoted in the mainstream media.
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