Hidden Fees of Point-of-Sale Loans

By Courtney Dodson

A point-of-sale (POS) loan is a way to break down an expensive purchase into several smaller, more manageable payments. Also known as a “buy now, pay later” plan, this type of installment loan is commonly offered online and is usually displayed as an option on a retailer’s checkout page, where payment details are entered. Companies like AfterPay, Klarna, and Affirm have gained increasing popularity by offering these POS loans, allowing buyers to receive their purchases before paying in full. 

While these types of loans can be used for almost anything, Affirm is known for partnering with popular fitness companies like Peloton and Mirror. AfterPay and Klarna also allow you to shop with well-established brands, like Old Navy or Foot Locker. Typically, the first installment is due at checkout, followed by several more every two weeks until the balance is paid off. 

Getting a Buy Now, Pay Later loan

Signing up for a POS loan is generally quick and simple. During online checkout with a participating retailer, the “buy now, pay later” plan is selected and an account is created with the financing company. You’ll enter required personal information and a soft credit check will most likely be performed before an instant decision is given—the entire process takes only a few minutes. Most plans are split into four installments, like those offered by AfterPay and Klarna. Longer terms are also offered with some plans, depending on the retailer; Affirm offers plans with terms up to 12 months.

Some online financing companies offer a mobile app as well, where everything can be purchased with a POS loan. This eliminates guesswork for those looking to buy items with installments, so they don’t waste time on websites not partnered with a financing company. Klarna is well-known for its mobile app, where consumers can shop knowing that a full payment won’t be required right away.

Fees to consider

Fees associated with POS loans vary by financing company and by the payment plan selected, but it’s important to do some research before signing up to make sure your plan is beneficial.

Interest

Interest is how much it costs to borrow money, and it’s displayed as a yearly percentage known as the annual percentage rate (APR). While many POS loans do not charge interest, there are some that do—making it important to pay attention to the terms of your plan. Some plans offered through Affirm, for example, charge an APR of up to 30%.

Late fees 

As with any loan, the financing company wants to be repaid. Not all financing companies penalize late payments, but some do. Klarna charges a $7 late fee after two attempts to collect the payment, for example, so if you sign up for a loan, be sure to familiarize yourself with your financing company’s policy. 

Prepayment fee

Some companies may also charge a penalty for repaying your balance in full ahead of schedule. Particularly if they expected to receive interest payments for a set period of time, the financing company may collect a prepayment fee to help recoup some of the missed interest.

Advantages and disadvantages

A point-of-sale loan can be advantageous if you’re responsible with finances and know you’ll be able to pay each installment on time. If you research the terms of your loan agreement and find one without an interest charge, it may be helpful for breaking a large purchase into several smaller payments. Because most financing companies perform a soft credit check, it won’t hurt your credit score to apply and you don’t need a stellar credit history to qualify. Some companies also report your payment history, which can be helpful if you make all your payments on time. 

If you don’t have a track record of fiscal responsibility, however, a POS loan could also lead to more disadvantages than it’s worth. If you find yourself unable to pay future installments, you may face interest charges, late fees, a damaged credit score, and potentially being banned from using the service again. Plus, a POS loan is not always a viable solution—some financing companies require a minimum installment payment, so if your purchase isn’t large enough, it may not qualify for the service anyway. 

Consider whether you can afford future installments or whether you should wait until you have the money on-hand before making a major purchase decision. For those with good credit who might qualify for a lower APR, a personal loan could be another alternative for big expenses. 

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