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- Point of sale (POS) loans have become increasingly popular, with offers from companies like Afterpay, Affirm, and QuadPay appearing on the sites of many retailers.
- POS loans provide the ability to buy a product now and pay for it in installments, like layaway but in reverse.
- These short-term loans can be beneficial for consumers who buy large items, such as furniture or appliances, who have money in their monthly budget to make payments. But they can also encourage bad drinking habits.
- Learn more about personal finance coverage.
The concept of “buy now, pay later” has long been popular. Credit cards make it easy. But, more and more, according to Bankrate.com search, people choose an alternative point-of-sale (POS) lenders to fill this financial gap. A Point of sale loan is essentially the opposite of laying aside. With layaway, you pay for your item over time and then bring it home when you’ve cleared your bill. With a point of sale lender, you get your item first and then pay for it over a specified period of time. Companies like Affirm, Afterpay, Klarna, and QuadPay are among those offering point-of-sale loans.
These services are also widely available. According to Ted Rossman, industry analyst for CreditCards.com, “Some of them are linked to participating retailers (like Affirm, which partners with Walmart, among others, and Afterpay, which partners with companies such as Forever 21, MAC Cosmetics and Billabong for offer loans). Others (like Klarna) can be used on any website (they give you a ‘ghost card’ number to enter at checkout). “
But like any financial product, it’s important to do a thorough analysis first to see if it’s right for you.
How Are POS Lenders Different From Credit Cards?
First of all, point-of-sale lending is only possible through some retailers, while credit cards can be used to purchase virtually anything. “Plus,” says Leslie Tayne, a debt settlement lawyer with the Tayne Law Group, “the amount you borrow is based on your purchase with the point-of-sale loan, rather than your credit limit. . Interest rates can be similar. on both and the funding is immediate. ”
The length of your loan will vary depending on the lender; it can be 30 days, a few months, or one or more years. Borrowers make monthly payments until their last payment is due or they prepay the loan.
Finally, point-of-sale lenders subscribe to the borrower with each new purchase, which protects them from too much credit extension. Credit card companies, on the other hand, provide consumers with a line of credit that renews itself as the balance is paid off.
Know what you’re getting into
Don’t make any assumptions and do your research to be clear about what each lender is offering before signing up for a loan. Every lender is different.
For example, with Klarna, you have no interest or fees, and you spread the entire purchase price over four bi-weekly payments. There is no credit check and you can pay the full amount at any time. Klarna has 190,000 business partners around the world. It is used for online shopping and is expected to be available in stores across the United States early this year. With QuadPay, borrowers pay in four installments over six weeks with no interest charges. You can buy online using the QuadPay app anywhere Visa is accepted and anywhere in stores through the QuadPay app using Apple Pay or Google Pay.
It is also important to shop with point of sale loans. Calculate the total cost (including interest and fees) of buying the goods on a credit card with a fixed percentage annual interest rate for the same number of months as your expected installment loan and see how much best offer.
Point-of-sale loan may be a better option for those looking to make large purchases without a credit card because you know how long you’ll be making your payments and when you’ll be debt-free. As with a personal loan, your payments are predictable each month.
Further, adds Tayne, “The combination of no credit history and the ability to make fixed monthly payments can make this an attractive option for large one-off purchases, such as mattresses, furniture, or furniture. electronic devices, as long as you have it in your budget to pay it off. “
While point-of-sale loans are attractive, one of the main drawbacks of these loans is the interest rate, which can be as high as 30%, according to Tayne. Then there is the temptation. Much like a credit card, the thought of paying later can give you the green light to buy now and worry about it next week. Discipline is necessary to avoid overspending. The last thing you want is to take more than you can afford, especially if you already have a stack of bills.
Since point-of-sale lending algorithms do not place as much weight on factors like credit history, borrowers who take out these loans can be very susceptible to bad credit habits.
And, if you want to return what you bought, you will have to work with the retailer rather than the lender and you may end up having to pay part of the loan.
With Affirm, for example, you will only be refunded if the merchant receives your returned items and processes the refund within 120 days of the date of purchase. Affirm will credit all loan payments you have made, up to the repayment amount, but you will not get back the interest you paid on the loan.
Installment programs can affect your credit. For example, Affirm reports to the credit bureaus, while Klarna does not. Pay off your payments on time and in full to keep your credit healthy.
Be clear about the fees associated with the loan. Look for the best deal. You don’t want surprises like late fees and deferred interest.
Is POS Loan Right For You?
Just like with credit cards, point-of-sale loans can be great if you use them correctly. Where credit cards can help you build credit and earn perks and rewards, they’re only good if you spend within your means and are able to pay off your balance in full each month. The same goes for POS loans. If you are able to make your monthly payments without going into debt, they can be great for making big purchases. But beware: they can make shopping too easy. Before you know it, you might have a pile of POS loan bills due every month, and that’s definitely not good for your bottom line.
“If you’re in debt, then cash and debit are better options,” Rossman says. “Point-of-sale lenders focus on discretionary purchases – typically, not food and shelter – so it’s important to avoid this type of consumer debt.”