What Is Point-Of-Sale Financing?
Point-of-sale (POS) financing is a convenient lending option that lets consumers make purchases with incremental payments. Retailers partner with third-party lenders—like financial technology companies Affirm, Afterpay and Klarna—and then integrate those lending services into the checkout process.
POS financing typically has less stringent eligibility requirements than traditional financing, and many lenders offer a 0% annual percentage rate (APR) for a certain period of time. That said, sale financing isn’t always the best option, and it can lead to late fees and overspending. To help you navigate the realities of POS financing, we’ll break down the pros and cons, plus when it’s a good fit for consumers.
How Does Point-of-sale Financing Work
You can complete point-of-sale financing without leaving the retailer’s website, making it an incredibly convenient way to finance individual purchases. POS loans often come with a 0% APR for a set repayment period, though some lenders charge up to 30%—especially for less qualified borrowers.
That said, many POS lenders impose much less demanding qualifications than banks and other lenders. Borrowers may still need to provide their Social Security number (SSN) so the lender can evaluate creditworthiness based on a soft credit check—which doesn’t impact your credit score.
Approved customers can then choose from available repayment terms to reach a monthly payment that fits their budget. Depending on the lender, this may include three-, six-, or 12-month terms, or even longer for large purchases.
Alternatively, some financing companies split the purchase into four payments with the first collected at checkout and subsequent installments charged every two weeks. For example, if a customer finances a $100 purchase at 0% APR, he pays $25 at checkout; the next $25 installment is due two weeks later, and so on for a total of six weeks.
Loan payments are typically made through the lender’s website or mobile app. And, to reduce the chances of late payments, many lenders send out text or email reminders to keep borrowers on track. In the case of a late payment, some POS financing companies charge a late fee, whereas others maintain a totally fee-free structure.
When Should You Use Point-of-sale Financing?
More and more online retailers are offering point-of-sale financing, but that doesn’t mean it’s a good option for every shopper. Opt for POS financing if you:
- Are planning a large, one-time purchase. If you’re buying a high-value item like a sofa or mattress and don’t want to pay the APR on your usual credit card, POS financing can offer a convenient solution.
- Don’t have an established credit history. Like retailer-specific credit cards, POS financing is particularly well-suited to shoppers without an established credit history. Many POS lenders have less stringent eligibility requirements than traditional financing, and some don’t require a credit check at all.
- Have access to a low interest rate. Unless you have access to a 0% APR credit card, the interest rates available through POS financing are likely lower than the alternatives. That said, APRs can go up to around 30%, so double-check the rate before committing.
- Can afford the payments. As with any loan, make sure you can afford the payments before using a POS loan. Some lenders disclose the payment amount on each item’s listing page, while others require you to begin checkout and choose a payment term.
- Don’t plan to return the item. Point-of-sale financing can complicate the return process—especially if the retailer doesn’t give you a full refund. For that reason, you should only rely on this type of loan if you plan to keep the item(s) purchased, or if the lender offers a 30-day payment option.
How to Get a Point-of-sale Financing
Many retailers partner with a specific point-of-sale financing company, and you can select this option at checkout. In this case, you’ll be directed to create an account with the lender—including providing basic details like your name, address and date of birth. Some POS lenders also require you to enter your SSN so they can run a soft credit check.
Once you create your account and, where necessary, qualify for the loan, you’ll get to choose from several payment plans. The process only takes a couple of minutes and won’t substantially interfere with your buying experience.
Some preferred POS financing partners also let users get a one-time virtual purchase card that can be used at any retailer without having to sign up through the merchant’s website. Just create an account with the lender, request a card and use it to make your purchase. Then, make payments through the lender’s website or app—just as you would if you chose financing during the merchant’s checkout process.
Where to Get Point-of-sale Financing
Here are some popular sources of point-of-sale financing you may encounter when making your next purchase:
Available at thousands of retailers, Affirm is a point-of-sale financing company that provides installment loans for consumers. The platform offers three-, six-, or 12-month repayment terms at checkout, though these options can vary based on the size of the purchase; some purchases may also require a down payment—an amount due at checkout.
Customers may have access to 0% APR but rates otherwise range from 10% to 30%, depending on the borrower’s credit score. There are no hidden fees, including for late payment, prepayment or account closure.
If you don’t see the Affirm logo at checkout, you can log in to your account, tell them where you’re shopping and get a one-time-use virtual card to make the purchase.
Like Affirm, Afterpay is a financial technology company that offers point-of-sale financing. Instead of offering three-, six- or 12-month financing, Afterpay customers pay in four, interest-free payments that are due every two weeks. Customers are never charged interest and there are no fees as long as you make on-time payments for the designated repayment period.
Eligibility criteria apply, but qualified shoppers get instant approval and don’t have to wait on shipping.
Klarna is another fintech company that offers financial services for direct and post-purchase payments. As with Afterpay, customers pay in four, interest-free payments; the first payment is collected when the order ships and the remaining three are collected every two weeks after that; late payment fees up to $7 may apply.
Klarna also offers an interest-free, pay-in 30 days option that’s perfect if you think you might return all or part of your purchase. You can finance purchases of $540 or more with a six- to 36-month loan and interest rates between 0% and 29.99%. Customers can also request a one-time payment card for use at retailers that don’t work directly with Klarna.
Pros of Point-of-sale Financing
- Fast access to cash: Point-of-sale financing eliminates the need to apply for a personal loan or credit card. Instead, customers can get almost instantaneous access to financing without leaving a retailer’s website.
- Flexible borrowing: In contrast to personal loans that come with fixed borrowing minimums, POS financing lets you borrow exactly what you need and when you need it. This means you won’t pay interest on a larger loan than necessary, and you won’t be tempted to spend up to a larger credit limit.
- May be low-interest: Most POS financing options provide 0% interest on purchases so you only pay for the true cost of the purchase. Many of these lenders are also fee-free.
- Accessible to shoppers with no credit history: POS lenders do not typically require customers to meet stringent eligibility requirements. This lets borrowers with a limited credit history get financing without jumping through the hoops of a credit card or loan application.
- Convenient and easy to use: In addition to providing quick, convenient access to financing, POS lenders also simplify payments. Borrowers can typically manage their accounts through the lender’s website or mobile app, and many send payment reminders via text or email.
Cons of Point-of-sale Financing
- Can have a high cost of borrowing: While some point-of-sale financing is interest-free, other lenders may charge up to 30% APR based on a shopper’s creditworthiness. And, if you miss a payment, you could be on the hook for late fees.
- Temptation to overspend: Delaying payment with POS financing can lead to increased spending that’s not aligned with your actual budget.
- Terms can be confusing: Before choosing POS financing, make sure you understand the repayment terms. This can help you avoid late fees and damage to your credit down the line.
- Can complicate refunds: POS financing can make it more difficult to return a product if the retailer doesn’t extend a full refund. That said, some lenders like Klarna provide a 30-day payment option for purchases you think you may return.
Alternatives to Point-of-sale Financing
If you prefer to access a revolving line of credit or need access to a large sum of money, point-of-sale financing likely isn’t the best solution. Instead, consider one of these alternatives.
0% APR Credit Card
A 0% APR credit card is a revolving line of credit that lets customers borrow money at 0% APR for a promotional period usually between sixth months and two years. Once the introductory period ends, the borrower starts paying interest on the outstanding balance at a rate determined during the card approval process.
Unlike a personal loan, you can access credit on an as-needed basis, making a 0% APR credit card an excellent option for financing smaller purchases.
Personal loans are available through traditional financial institutions and online lenders and generally range anywhere from $1,000 to $100,000. The funds are disbursed as a lump sum, making them a good option for larger, one-time purchases—but not smaller, everyday purchases like clothing or home goods.
Repayment terms typically extend from two to seven years but can be shorter or longer depending on the lender. Interest rates range from 3% to 36%, but only the most qualified borrowers can access the most competitive rates. You can apply for a personal loan online.