Buy now, pay later lets you break down a purchase into a series of smaller payments. It is also known as a point-of-sale loan.
In recent years, point-of-sale financing has rapidly expanded in the United States, with lenders like Klarna, Afterpay and Affirm now partnering with major retailers, including Macy’s, Bed Bath & Beyond and Walmart, to bring the option to consumers.
Choosing a point-of-sale loan can make sense if it charges zero to minimal interest and the payments don’t stress your budget. But if the interest rate is high, consider other types of loans to finance your purchase — even if they’re less convenient.
How to get a point-of-sale loan
To apply for a point-of-sale loan, you’ll need to create an account with the lender. This is usually integrated directly into your checkout experience.
Once you opt in, you’ll provide basic personal details like your name, date of birth and address. You may also be asked for your Social Security number, and most companies will perform a soft credit check, which does not impact your score.
You'll then see the breakdown of your payment plan options. Point-of-sale loans divide your balance into installments, spread out evenly over an agreed-upon repayment term, with the first installment due at checkout.
For example, if your total is $100 with a zero-interest, two-month repayment plan that comes due every two weeks, you would pay four installments of $25. After you input your payment information and billing address, and agree to the terms and conditions, your debit or credit card will be charged for the first payment and automatically charged every two weeks until your balance is paid in full.
Just like applying for a store credit card, the whole process takes anywhere from a few seconds to a few minutes. The approval decision is instantaneous.
Depending on the financing company, interest and late fees may be applied.
Are POS loans a good idea?
Point-of-sale financing can be a good option when you need to make a purchase you can’t cover outright and the installments fit comfortably in your budget. You should also look to pay zero to minimal interest.
Consider a POS loan if:
You’re new to credit: Companies that offer point-of-sale financing have more lenient criteria when deciding whether to approve you for a loan. Though some lenders check your credit score, others focus on the funds available on your debit or credit card, the repayment term and the price of your purchase.
Some companies also report your payment history, which can help your credit score if you make all payments on time.
You’re making a big, one-time purchase: Point-of-sale loans are useful when you need to get a new mattress, piece of furniture or some other big-ticket item, but don’t have a credit card or prefer the simplicity of fixed monthly payments.
You won’t pay much interest: While some retailers may offer zero-interest rates, that won’t always be the case. For example, annual percentage rates at Affirm can be as high as 30%. To finance a purchase of $800 on a 12-month repayment plan at 25% APR, you would pay $113.68 in interest.
You can afford the payments: The convenience of point-of-sale financing may tempt you to overspend. If you carry a balance on your credit cards or have other debt, taking a loan for nonessential purchases is not a good idea.
You plan to keep the item: If you want to exchange or return your purchase, you typically have to work directly with the retailer, not the lender. If you don’t get a full refund, you may still have to pay back part of your loan or risk a hit to your credit.
Where to get a POS loan
Unlike other types of loans, you don’t need to shop around for the right lender for a point-of-sale loan. The lender is determined based on the stores you shop at, and the biggest players are Affirm, Afterpay and Klarna.
Affirm works with trendy wellness retailers like Peloton, Casper and Mirror and negotiates its loan eligibility criteria and interest rates with each individual retailer, meaning your repayment term options and interest rate can change based on where you shop. While some of Affirm’s partner stores charge zero interest, others can charge up to 30% APR. Affirm never charges late fees.
Afterpay, which partners with well-established retailers like Old Navy, Gap and Bed Bath & Beyond, offers a more straightforward model. Regardless of the retailer, you will make four interest-free installments that are due every two weeks. These installments are divided equally, though your first payment could be higher if your purchase is large.
As long as you pay on time, there are no additional fees with Afterpay. However, if your payment is not received within 10 days of the due date, you will be charged a maximum fee of $8.
Klarna differentiates itself by focusing primarily on its mobile app experience. Once you download the Klarna app, you can shop at stores like Sephora, Foot Locker and Macy’s using the Klarna payment plan — your total balance divided into four payments, paid every two weeks, with zero interest. If Klarna is unable to collect a payment after two attempts, it will charge a late fee of $7.
0% - 30%
Varies based on retailer
4 installments, due every 2 weeks
4 installments, due every 2 weeks
Alternatives to POS loans
If you’re making a larger purchase, you may want to research what annual percentage rate you could get on a personal loan. Like a point-of-sale loan, you can pre-qualify with a lender and see your rates without affecting your credit.
If you qualify for a lower APR on a personal loan than you do on a point-of-sale loan, the personal loan will likely be the more affordable option.
If you have good or excellent credit, you could also try qualifying for a 0% APR credit card. Some cards offer an introductory period up to 18 months, during which no interest will be charged on any purchases. You may also be offered a sign-up bonus or access to a rewards program.
If a point-of-sale loan offers a similar term but with interest or fees applied, a 0% card would be the cheaper option.