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

Choosing the Right Option to Spread Out a Purchase

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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 others 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 buy now, pay later 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.

Key Takeaways

  • Point-of-sale loans come in two forms: loans with interest and buy now, pay later loans without interest.
  • Point-of-sale loans can have high APRs but you may be able to get a 0% offer.
  • Buy now, pay later offers usually has shorter repayment periods than point-of-sale installment loans. Therefore, monthly payments may be higher than point-of-sale loans.
  • Avoid late payments on buy now, pay later loans, as the fees you pay could cost you more than what you'd pay in interest through point-of-sale 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

  • Low fees and reasonable interest rates, in some cases

  • No interest payments for buy now, pay later

Cons
  • Some borrowers may get exceptionally high rates

  • Buy now, pay later repayment schedules could create big minimum payments

  • There may be late fees

  • Lack of choice with loan providers at checkout

  • Lenders may not report to credit bureaus

How Point-of-Sale and Buy Now, Pay Later Installment Loans Work

Point-of-sale installment loans fall into two main categories: interest-based loans and "buy now, pay later" no-interest loans.

Most point-of-sale interest-based 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. 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 provide personal and financial information, and then receive a decision. If you’re approved, you can 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.

If you select a buy now, pay later option, your loan will cover the amount of the purchase. In most cases, the lender will split up the purchase into four payments. Your first payment is due at checkout, followed by three more payments over three months.

Point-of-Sale Loan and Buy Now, Pay Later 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 through buy now, pay later options. For example, Afterpay and Klarna don’t charge interest at all. The only fees you'll pay are late fees you incur when you don't make a payment on time or make a payment that's less than the required amount.

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 that charge origination fees ranging anywhere from 3% to 8%. 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. 

And keep in mind that, while buy-now-pay-later options don't charge interest, late fees can end up costing you more than interest payments. For example, if you pay one late fee during a two-month payoff of a $200 purchase, your fee payments would be equivalent to an APR above 100%.

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 Loan and Buy Now, Pay Later 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, the list of popular lenders may help you decide where to shop. APR and loan terms may vary, and are accurate as of Nov. 30, 2020:     

Point-of-Sale Installment Loans

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, Peloton, Purple, Casper, Saks Fifth Avenue, Reverb
Bread 0% to 29.99% Six weeks for SplitPay, 3 to 48 months for installment loan Not disclosed Reports to TransUnion Noemie, Create Room, Hublot, Newton Baby, Digital Storm
MarcusPay 10.99% to 25.99% 12 or 18 months None Not disclosed JetBlue Vacations

Buy Now, Pay Later Loans

Lender APR Loan Terms Fees Reports to Credit Bureau Sample Retail Partners
Afterpay None 3 payments, plus a down payment, or 4 payments paid every 2 weeks No service fees; up to $8 for late payments outside of grace period (usually 10 days) May report missed payments to credit bureaus Levi’s, Urban Outfitters, American Eagle, Ulta Beauty, Steve Madden, Sunglass Hut, Origins, Jimmy Choo
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
PayPal Pay in 4 None 4 payments in 6 weeks Late payments depend on state regulations Not disclosed Online stores that accept PayPal.
My Chase Plan None 3 to 18 months Monthly fee (varies by borrower), late fee equal to credit card late fee Not disclosed Available where Chase credit cards are accepted

PayPal's Pay in 4 is not available in Georgia, Missouri, New Mexico, North Dakota, South Dakota, Wisconsin, or U.S. territories.

The Bottom Line

If you’re considering a point-of-sale installment loan or buy-now-pay-later offer, it doesn’t hurt to check what interest rate you could get for a one-time store financing loan and compare it to the payments you'd have to make with your buy now, pay later option.

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 Nov. 30, 2020.

  2. Affirm. "Affirm Terms of Service." Accessed Nov. 30, 2020.

  3. Bread. "Buy Now. Pay Smarter." Accessed Nov. 30, 2020.

  4. afterpay. "How Do Payments Work?" Accessed Nov. 30, 2020.

  5. Klarna. "Terms and Conditions." Accessed Nov. 30, 2020.

  6. PayPal. "Pay in 4." Accessed Nov. 30, 2020.

  7. Bread. "All Consumer FAQ." Accessed Nov. 30, 2020.

  8. Marcus by Goldman Sachs. "MarcusPay." Accessed Nov. 30, 2020.

  9. Affirm. "Why Affirm." Accessed Nov. 30, 2020.