What is a point-of-sale loan and is it worth it?

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Online shopping has become a popular way to buy just about everything from clothes to furniture, electronics to wellness products and almost anything else you can think of – especially in the last few months, because the coronavirus pandemic has kept many Americans at home.

And if you’re one of the millions of people who have shopped more online lately, you’ve probably noticed a little logo near the payment information at checkout offering the option to buy now, pay later, or to request a monthly payment plan. .

These options are called point-of-sale loans or point-of-sale loans, and they seem to be popping up everywhere. Companies like After payment, To affirm and Klarna offer low or no interest financing for purchases, which might help if you need more time to pay.

But like any loan, POS loans come with some terms and conditions that you want to know about before signing up. Up front, CNBC Select explains what to consider if you want to take out a POS loan the next time you make a larger purchase.

What is point-of-sale financing?

POS financing is a broad term that describes methods of providing buyers with flexible and phased payment options. In some cases, buyers apply for a one-time installment loan at the credit union to help divide their purchases into smaller monthly payments. In other cases, a consumer may sign up for a payment platform that partners with specific retailers and gives them the option of choosing a payment plan when they checkout.

With Klarna, for example, customers link their debit card to the app and pay in bi-weekly installments with the option of 0% interest on four payments. Klarna partners with stores like Sephora, Adidas, H&M and many more.

Installment finance is considered a type of unsecured loan and in the past it was typically used when consumers wanted to purchase an expensive item, such as furniture, electronics, jewelry, etc. But these days, the “buy now, pay later” option is popping up in almost every industry, from clothing to housewares and cosmetics – even on Etsy. Point-of-sale loans are also growing in the travel sector, with many airlines leave you book now and pay over time with an installment plan.

What to think about before applying

Without a doubt, POS financing comes in handy when you don’t have any cash up front. But as with all loan products that could impact your credit score and overall finances, be careful when applying.

Here are a few things to consider:

1. The impact on your credit

POS loans may or may not require a serious credit investigation. When you apply, read the fine print to see if the company will pull your information from the credit bureaus, which could impact your credit score. Affirm, for example, only performs a smooth credit check.

Also do your research to see if the company reports to the credit bureaus, which could positively impact your credit after you make regular payments on time, or hurt your score if you don’t pay. Large companies, like Affirm, will likely report your activity to the credit bureaus. Klarna can report negative actions, such as a default, but doesn’t always report everything.

2. Monthly payment

Ask yourself if you can comfortably afford the monthly payment for the life of the loan. A $ 500 purchase can cost you $ 50 a month, but consider whether you really want to be addicted for 10 months until you pay it off. This decision may vary depending on the item; $ 50 per month for a new mattress might seem like a good deal, while $ 50 per month for new shoes that you don’t really need might be different. Which brings us to our next point …

3. Returns

If you decide to return the item, find out about the return policy before you fund a loan to pay for something. If there are shipping and / or restocking charges, or if you are denied a full refund, you may be required to repay some or all of the loan. Also check if there is a penalty for prepaying the loan, which you will need to do if you end up returning the financed item.

4. APR

Is the loan accompanied by 0% APR financing when you pay in installments? Otherwise, calculate how much interest will cost you over time. If the APR is too high, you might be better off using cash or a credit card rewards (as long as you plan to pay it in a billing cycle). You should also consider what happens if you miss a payment or fall behind in general. Some POS loans can incur very high fees if you miss a payment.

An alternative option: 0% APR credit cards

Point-of-sale financing may be attractive to some consumers, but a 0% APR rate credit card can offer the same flexibility, but with added rewards.

For example, many of the best 0% APR cards have welcome bonus upon registration and meet certain minimum spending requirements. the Wells Fargo Cash Wise Visa® Card, for example, rewards new cardholders with a $ 150 cash rewards bonus after spending $ 500 in the first three months and offers an introductory 0% APR for the first 15 months from the start. opening of the account on balance transfers and eligible purchases (then variable from 14.49% to 24.99% APR).

The best 0% APR cards offer periods of 15, 18 and 20 months at 0% APR. For example, the American bank Visa® Platinum card offers 0% for the first 20 billing cycles on balance transfers and purchases, then a variable APR of 14.49% to 24.49% applies.

With the right credit card, you can earn rewards on your big purchases and enjoy generous funding. You usually need to have good or excellent credit to be approved for the best 0% APR deals.

Wells Fargo Cash Wise Visa® Card

  • Awards

    1.5% cash rewards on purchases

  • Welcome bonus

    $ 150 cash rewards bonus after spending $ 500 on purchases in the first 3 months of account opening

  • Annual subscription

  • Introduction APR

    0% for the first 15 months after opening the account on qualifying purchases and balance transfers

  • Regular APR

    14.49% to 24.99% variable on purchases and balance transfers

  • Balance transfer fees

    3% launch fee ($ 5 minimum) for 120 days from account opening, then up to 5% ($ 5 minimum)

  • Foreign transaction fees

  • Credit needed

Benefits

  • No annual fee
  • Use your Wells Fargo debit or ATM card to redeem rewards for cash at Wells Fargo ATMs (in $ 20 increments)
  • Generous welcome bonus

The inconvenients

  • 1.5% lower than average cash back
  • 3% fees charged on foreign transactions
  • Estimated rewards earned after 1 year: $ 482
  • Estimated rewards after 5 years: $ 1,809

Reward totals incorporate the cash back earned from the welcome bonus and assume you are using qualifying mobile wallets for 75% of your first year purchases.

American bank Visa® Platinum card

On the secure site of US Bank

  • Awards

  • Welcome bonus

  • Annual subscription

  • Introduction APR

    0% for the first 20 billing cycles on balance transfers and purchases

  • Regular APR

  • Balance transfer fees

    Either 3% of the amount of each transfer or $ 5 minimum, whichever is greater

  • Foreign transaction fees

  • Credit needed

Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.

About Robert Wright

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