Point-of-Sale (or Buy Now, Pay Later) Loans

Point-of-sale loans—aka point-of-sale financing or buy now, pay later—allow consumers to buy products online or in a store and pay off the purchase over time. 

These unsecured loans are convenient for consumers because they don’t require planning, and many come with low or no fees or interest charges. 

On the other hand, frequent use of point-of-sale loans can strain your budget and make it difficult to cover necessary expenses. Understanding how they work and what to watch out for can help you determine whether to use one.

In this guide:

• What is a point-of-sale loan?
• How do point-of-sale loans work?
• Pros and cons of a point-of-sale loan
• Is a point-of-sale loan worth it?
• Alternatives
• FAQ

What is a point-of-sale loan?

A point-of-sale loan is a type of personal loan, often from a third-party company, such as Afterpay, Klarna, Affirm, or PayPal, which partners with merchants to offer financing on certain purchases. 

These loans allow you to spread out payment of your purchases—whether online or in-store—over several weeks or even months. In many cases, you’ll pay no fees or interest charges. Some lenders may charge interest, depending on creditworthiness.

Various services have different credit requirements, but you often don’t need to undergo a hard credit check to get approved. In some cases, you may even be able to get a loan if you’re new to credit or have a poor credit history.

Merchants partner with buy now, pay later services because they can help generate sales in situations where a customer can’t afford to pay in full on the transaction date. In exchange, merchants pay a transaction fee to the lender.

How do point-of-sale loans work?

Unlike personal loans, which require you to apply with a lender, you can apply for a point-of-sale loan during checkout. For instance, if you’re shopping online, you might see it as an alternative payment method to a credit or debit card.

Not all merchants offer point-of-sale loan options, so you may need to check before you start shopping.

When you select a buy now, pay later option at checkout, you’ll need to provide basic information about yourself, including your:

• Name
• Birthdate
• Address
• Social Security number

Using this information, the lender will run a soft inquiry on your credit reports, which won’t affect your credit. If approved, you’ll get a personalized offer, or you may be able to choose from several financing options. Sometimes, you’ll break up the payment into four installments, which you’ll pay over six weeks. In others, you may get several months or even years, depending on the purchase size.

Example of a point-of-sale loan

Let’s say you want to buy a $1,000 television and pay for it over time. You apply for a point-of-sale loan and get approved for a six-week repayment plan with four payments.

The lender gives the merchant the total purchase amount, and you make payments to the lender. In this scenario, you’ll pay $250 upfront, then another $250 every two weeks until you’ve paid off the transaction. 

With a different buy now, pay later service, you may get approved for a loan with a 12-month repayment period and a 12% annual percentage rate (APR). In this case, you’ll make a payment of $88.85 each month and end up paying $66.19 in interest.

Pros and cons of a point-of-sale loan

As with any financial product, you should consider the advantages and disadvantages. Here’s what to know about point-of-sale financing.

Pros

• Convenient access to financing.

  You don’t need to worry about applying for a personal loan or credit card before the purchase. If the merchant partners with a buy now, pay later service, you can get a point-of-sale loan during checkout.

• Can be inexpensive.

  Depending on the lender, you may be able to get a loan with no interest charges or fees. 

• Get exactly what you need.

  Your loan amount will be your purchase price, allowing you to avoid borrowing and paying interest on more than you need.

• May not require good credit.

  If you’re new to credit or have a poor credit history, you may still get approved with some point-of-sale lenders. There’s often no hard credit check when you apply, so you don’t need to worry about hurting your credit score by trying. 

Cons

• Loans can be expensive.

  Your APR can be upward of 30% with specific lenders, depending on your creditworthiness. And if you miss a payment, you may need to pay a late fee.

• Won’t help you build credit.

  Point-of-sale loan payments aren’t often reported to the credit bureaus, so your on-time payments won’t help you establish a positive payment history.

• Refunds can be complicated.

  Since you’re working with two companies, returning an item for a refund can get complicated, especially if the merchant’s refund policy is complex.

• Potential for overspending.

  The ability to pay off everyday purchases over time can increase the likelihood of overspending. Before applying for a point-of-sale loan, ensure the payment fits your budget, particularly if you already have outstanding point-of-sale loans.

Is a point-of-sale loan worth it?

A point-of-sale loan can be worth it in some instances, but it’s essential to understand your situation and needs before you decide to use one. It might make sense to use one in the following scenarios:

• You’re making a large, one-time purchase: If you’re not planning to use buy now, pay later services often, it can make sense to finance occasional large, necessary purchases.
• You can get a low- or no-interest loan: If you qualify for a point-of-sale loan with low or no fees and interest, you may not have to pay extra for the financing. But ensure the installments fit in your budget first.
• You don’t plan to return the item: Because refunds can get complicated, it’s best to avoid point-of-sale loans if you think you may return the item and request your money back.
• You have a limited credit history: If your credit history is limited, obtaining financing can be difficult. In some cases, however, a point-of-sale loan may still be within reach.
• You want to avoid a hard credit check: Because many buy now, pay later services don’t require a hard credit check, you can avoid the temporary ding to your credit score that comes with a personal loan or credit card application. 

Alternatives to point-of-sale financing

Depending on your situation, you may have access to one or more alternative financing options to point-of-sale loans. Here are three to consider:

• Personal loan: If you need to make a sizable purchase and want more time to pay it off, a personal loan may be a better fit. However, personal loan interest rates can range from the single digits to upward of 30%, so this option is best if you have good or excellent credit. 
• Credit card: Credit cards offer grace periods on purchases, often giving you as much time as many point-of-sale loans to pay off your transaction. You may also be able to earn cash back, points, or miles on the transaction. Moreover, many credit cards offer 0% APR promotions, allowing you to pay off purchases over six to 21 months interest-free. Certain 0% APR credit cards also offer welcome bonuses to sweeten the deal.
• Promotional financing: Some retailers may offer in-store promotional financing, allowing you to pay low to no interest over a set period. Just be sure to read the fine print: Some such offers will charge you retroactive interest if you don’t pay off the purchase before the promotional period ends.

FAQ

Are point-of-sale and same-as-cash financing the same thing?

Point-of-sale loans and same-as-cash financing are two ways to pay for a purchase. Many third-party services offer point-of-sale loans, but same-as-cash financing is often an in-house payment option.

Depending on the retailer—same-as-cash financing is common with furniture, electronics, and appliance sellers—you may get a month to a year or longer to pay off a transaction. You’ll often need to make minimum monthly payments, but you won’t pay interest if you pay off the balance before the promotional period expires. 

If you miss a payment or don’t pay off the purchase on time, you may need to pay retroactive interest. 

How can a point-of-sale loan affect your credit? 

Specific buy now, pay later services run a hard credit check when you apply. This may be true with big-ticket item purchases in particular. If this occurs, your credit score may dip by a few points.

Most point-of-sale loan payments won’t get reported to the credit bureaus, so don’t expect to use one to build credit. If you miss payments or make a late payment, the lender may report it to credit agencies.