Should You Use a Point-of-Sale Installment Loan to Pay for Online Purchases?

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If you didn’t already know, you no longer need a credit card for all of your online purchases. Many retailers now partner with third-party lenders such as Affirm, Afterpay, Bread, Klarna, and more to help customers pay for online purchases with point-of-sale installment loans that you can apply for at checkout.  

Structured like a traditional installment loan, but with faster approval, point-of-sale loans often charge less interest than a credit card and may be more flexible than a personal loan. Point-of-sale installment loans allow you to borrow small amounts from lenders like Affirm to buy from partner stores like Adidas, or sign up for a four-month interest-free installment offer from Afterpay to finance a shirt from Urban Outfitters. 

While point-of-sale installment loans may sound enticing since you’ll have more time to pay for your online purchases, they may not be right for everyone. Consider these benefits and drawbacks, and learn how they work, before deciding to sign up for this type of store financing.

Point-of-Sale Loan Pros and Cons

Designed for instant gratification, point-of-sale installment loans make it easier for you to buy something now and pay for it later without waiting for a 0% APR credit card to arrive in the mail or personal loan funds to be deposited into your checking account. 

However, some point-of-sale loans can be pricey. Here’s what to consider when deciding whether an installment loan at checkout is right for you.

Pros
  • Borrow small amounts, like $50 or $100

  • Use loan within minutes of applying and being approved

  • Interest rate may be lower than a credit card, potentially even 0%

  • Few, if any, fees

  • Multiple loans allowed without harming your credit score

  • Loans terms are usually very simple

Cons
  • Some borrowers may charge exceptionally high rates

  • Loan terms are relatively short

  • Repayment schedules may be too fast for borrowers’ budgets

  • There may be late fees

  • Lack of choice with loan providers at checkout

  • Lenders may not report to credit bureaus

How Point-of-Sale Installment Loans Work

Most point-of-sale loans are only available through select online retailers. However, some loan providers, such as Affirm, offer one-time-use “virtual Visa cards” that you can use anywhere. 

When you shop online at participating retailers, an installment loan will be included as a payment choice at checkout. But unlike a personal loan, you won’t be given a lump sum to spend however you want. Instead, your loan will be exactly how much you need to pay for the items in your cart.

Some retailers will also include a prequalification link on their merchandise pages so you can see how much buying power you have before you settle on a purchase.  

Once you choose an installment loan as your payment option, you’ll then be asked a few personal and financial questions, and then given a decision right away. If you’re approved, you can then use your new loan to immediately complete your purchase. 

A point-of-sale lender will often perform a soft credit check before approving your installment loan. But unlike a hard credit check, this won’t affect your credit score.

Depending on the retailer, you may even be able to check out in a physical store using a partner’s point-of-sale app. 

Some lenders let you apply for as many point-of-sale loans as you wish (assuming you maintain good credit). But you’ll need to reapply each time you want to finance a new purchase. 

Point-of-Sale Loan Rates, Terms, and Fees

For borrowers with good to excellent credit, point-of-sale loans can be relatively inexpensive. 

For example, some point-of-sale loans may charge a minimum annual percentage rate (APR) of 10%, which is below the average credit card interest rate. Shoppers with lower credit scores may have more success qualifying for that lower rate, small dollar point-of-sale loan than they would if they applied for a larger loan or line of credit. 

Some shoppers may even be able to avoid paying interest altogether. For example, Afterpay and Klarna don’t charge interest at all. Other loan providers, like Affirm and Bread, offer 0% APR on only select purchases. 

However, some point-of-sale loan options can be exceptionally expensive––particularly if you have less-than-perfect credit. Maximum APRs on many popular loan options run as high as 30%, which is several points above what most credit cards charge. So if you pay for several big purchases using point-of-sale installment loans, the financing costs will quickly add up. 

Store financing offers vary widely, so it pays to compare options before you shop. Don’t wait until you’re feeling rushed at checkout to evaluate your loan offer.

Most point-of-sale lenders charge few, if any, fees though. That’s a big improvement over other loan options. For example, many personal loans charge origination fees on top of interest and many balance transfer credit cards charge balance transfer fees of 3% to 5%.

Term lengths on point-of-sale loans tend to be relatively short, often ranging from just three to 12 months. So if you’re on a tight budget, it may be difficult to repay your loan in such a short period of time. 

Point-of-Sale Promotions

Some stores also offer installment loans with longer-term, interest-free financing. These deals are typically 0% APR offers, rather than deferred interest financing, which makes them safer than many store credit card options.

Don’t let a store’s interest-free offer tempt you into buying more than you can afford, though.

Retailers often use point-of-sale promotions to make purchases appear more affordable. Casper mattresses, for example, tucks a 0% Affirm installment loan under its “Add to Cart” button, while Sephora displays an interest-free offer from Klarna underneath an item’s sales price. Similarly, Noemie helps soothe sticker shock by highlighting a shopper’s estimated monthly payments if they qualified for the lowest available APR from Bread.

Popular Point-of-Sale Lenders

Although you may not be able to pick which loan provider works with your favorite retailer, it’s still a good idea to compare options before making a big purchase. If you aren’t committed to one retailer, this list of popular lenders may help you decide where to shop. APR and loan terms may vary, and are accurate as of June 11, 2020.

Lender APR Loan Terms Fees Reports to Credit Bureau Sample Retail Partners
Affirm 0% to 30% 3, 6, or 12 months (longer terms may be available) None Reports some purchases to Experian Walmart.com, Reebok, Adidas, American Girl, Warby Parker
Afterpay None 3 payments, plus a down payment, or 4 payments paid every 2 weeks No service fees; up to $8 for late payments over 10 days May report missed payments to credit bureaus Levi’s, Urban Outfitters, American Eagle, Ulta Beauty, Steve Madden, Sunglass Hut, Origins, Jimmy Choo
Bread 0% to 29.99% 2 months for SplitPay, 3 to 48 months for installment loan Not disclosed Reports to TransUnion Noemie, Interior Define, Hublot, Newton Baby, Digital Storm
Klarna None 4 payments, paid every 2 weeks Up to $7 for late payments Not disclosed Sephora, The North Face, Abercrombie and Fitch, Rescue Essentials, Sedona Wellness
MarcusPay 10.99% to 25.99% 12 or 18 months None Not disclosed JetBlue Vacations
Square Installments 0% to 30% Up to 12 months None Not disclosed Any business that accepts Square payments and is set up for installment loans

The Bottom Line

If you’re considering a point-of-sale installment loan, it doesn’t hurt to check what interest rate you could get for a one-time store financing loan, especially since it's often only based on a soft credit check that won’t hurt your score. And while maximum APRs on some point-of-sale loans are high, many lenders offer exceptionally good deals. A point-of-sale installment loan may also be a good pick for you if you need interest-free financing, but don’t have time to wait for a new 0% APR credit card offer. Not all stores and purchases offer 0% financing, though, so remember to plan your shopping around the stores and lenders with the best deals.

Article Sources

  1. Affirm. "What’s an Affirm Virtual Card?" Accessed June 11, 2020.

  2. Citi. "Credit Card Balance Transfers 101." Accessed June 11, 2020.

  3. Affirm. "Affirm Terms of Service." Accessed June 11, 2020.

  4. Bread. "Buy Now. Pay Smarter." Accessed June 11, 2020.