Point-of-Sale Financing: Learn How It Works and Compare Options

There's a new way to pay when you check out — a personal loan, lease or line of credit. Here's how they compare.

Amrita JayakumarOctober 16, 2020
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The next time you shop, you may be offered a new way to pay — a personal loan, lease or line of credit. Instead of using cash or plastic at checkout, you would provide some personal information and get financing in minutes.

Companies like Affirm, Bread, Klarna, Acima Credit and Greensky offer “point-of-sale” financing for big-ticket purchases like mattresses, furniture, electronics or home improvement products.

Point of sale financing is useful when you need to make a big purchase and you’re new to credit, as long as you have room in your budget to pay it off. Borrowing rates can be high, so it’s best used sparingly — not for everyday or impulse purchases.

Here’s what you need to know about point-of-sale financing and a rundown of the options.

How point-of-sale financing works

The process is similar to selecting a store credit card at checkout. The option might appear next to the purchase price in your online shopping cart, or at the checkout counter in-store. Selecting it will direct you to the lender’s website or an application form. You enter a few pieces of personal information — typically your name, date of birth and last four digits of your Social Security number, or in some cases, just your phone number.

If you’re approved, you sign the agreement and finish checking out. Just like using a store credit card, the whole process takes anywhere from a few seconds to a few minutes.

Pros and cons of point-of-sale financing

Pros

Good for those new to credit: The companies that offer point-of-sale financing use homegrown algorithms to check creditworthiness, paying less attention to traditional data such as your credit score and history. They may ask to review your checking account transactions, for example. The loan may show up on your credit report, and some companies report your payment history, which affects your credit score.

Convenient for big, one-time purchases: Point-of-sale loans are useful when you need to get a new mattress, a piece of furniture or some other big-ticket item, but don’t have a credit card or prefer the simplicity of fixed monthly payments.

Cons

High interest rates: While some retailers may offer zero-interest promotional rates, annual percentage rates from Affirm and Bread, for example, can be as high as 30%. You will wind up paying $1,210 for a $1,100 Chanel handbag at Bluefly.com with a 12-month loan from Affirm at an APR of 18% — the average rate for its borrowers, Affirm says.

Temptation to overspend: If you carry a balance on your credit cards or have other debt, taking a loan for a nonessential purchase is not a good idea. The convenience of point-of-sale financing may tempt you to overspend, says Byrke Sestok, a certified financial planner at New York-based Rightirement Wealth Partners.

Returns: If you want to exchange or return your purchase, you typically have to work directly with the retailer, not the lender. Depending on the refund amount you get, you may still have to pay back part of your loan or risk a hit to your credit.

Compare point-of-sale lenders

San Francisco-based Affirm performs only soft credit checks and partners with retailers such as furniture store Wayfair, mattress store Casper, travel site Expedia and others.

Klarna, a Swedish company, partners with companies such as Lenovo and Overstock.com in the U.S. It offers two types of point-of-sale financing — an interest-free period of 14 days or 30 days or a line of credit starting at six months.

Utah-based Acima Credit works a little differently, since it is a rent-to-own company. The company offers lease-to-own financing for furniture and appliances. It’s a costly option for most people, unless you exercise an option to pay off the lease early.

Type of financing

Loan

Line of credit

Lease

Annual percentage rate

10% - 30%

19.99%

Fees vary

Minimum credit score

None

None

None

Loan/lease terms

3, 6, 12, 24 or 36 months

14 days, 30 days, 6 months

12 months

Reports to credit bureaus

Yes, Experian

No

Yes, Experian

Point-of-sale loans vs. credit cards and personal loans

Point-of-sale financing works similarly to unsecured personal loans, which are based on your credit. Here’s a breakdown of the differences between these loans, credit cards and typical personal loans.

Point of sale financing

Credit cards

Other personal loans

Used for

Making a purchase at a retailer

Everyday purchases

Any purpose (debt consolidation, large purchases, medical expenses)

Loan amounts

Depends on purchase amount

Credit limit varies based on your score and history

Between $1,000 and $50,000

APR range

0% - 30%

0% - 36%

5% - 36%

Loan duration

Varies by company; 14 days to 36 months

Monthly

2 to 5 years

Time to funding

Immediate

Immediate

Up to a week

Fees

Late fee

Late fee

Origination fee, late fee

Credit check

Soft pull

Hard pull

Soft pull, followed by hard pull

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