What You Need To Know About Buy-Now-Pay-Later Plans

If you didn’t already know, you no longer need a credit card for all of your online purchases. Many retailers now partner with third-party lenders such as Affirm, Afterpay, Bread, Klarna, and others to help customers pay for online purchases with buy-now-pay-later (BNPL) plans and point-of-sale installment loans that you can apply for at checkout.

Structured like a traditional installment loan, but with faster approval, point-of-sale loans often charge less interest than a credit card and may be more flexible than a personal loan. Point-of-sale installment loans allow you to borrow small amounts from lenders like Affirm to buy from partner stores like Adidas, or sign up for an interest-free, buy-now-pay-later offer from Afterpay to finance a shirt from Urban Outfitters.

While point-of-sale installment loans may sound enticing since you’ll have more time to pay for your online purchases, they may not be right for everyone. Consider these benefits and drawbacks, and learn how they work, before deciding to sign up for this type of store financing.

Point-of-Sale Loan Pros and Cons

Designed for instant gratification, point-of-sale installment loans make it easier for you to buy something now and pay for it later without waiting for a 0% APR credit card to arrive in the mail or personal loan funds to be deposited into your checking account.

However, some point-of-sale loans can be pricey. Here’s what to consider when deciding whether an installment loan at checkout is right for you.

How Point-of-Sale and Buy Now, Pay Later Installment Loans Work

Point-of-sale installment loans fall into two main categories: interest-based loans and "buy now, pay later" no-interest loans.

Most point-of-sale interest-based loans are only available through select online retailers. However, some loan providers, such as Affirm, offer one-time-use “virtual Visa cards” that you can use anywhere.

When you shop online at participating retailers, an installment loan will be included as a payment choice at checkout. Some retailers will also include a prequalification link on their merchandise pages so you can see how much buying power you have before you settle on a purchase.

Once you choose an installment loan as your payment option, you’ll provide personal and financial information, then receive a decision. If you’re approved, you can use your new loan to immediately complete your purchase.

Depending on the retailer, you may even be able to check out in a physical store using a partner’s point-of-sale app.

Some lenders let you apply for as many point-of-sale loans as you wish (assuming you maintain good credit). But you’ll need to reapply each time you want to finance a new purchase.

If you select a buy now, pay later option, your loan will cover the amount of the purchase. In most cases, the lender will split up the purchase into four payments. Your first payment is due at checkout, followed by three more payments over three months.

Point-of-Sale Loan and Buy Now, Pay Later Rates, Terms, and Fees

For borrowers with good to excellent credit, point-of-sale loans can be relatively inexpensive. For example, some point-of-sale loans may charge a minimum annual percentage rate (APR) of 10%, which is below the average credit card interest rate.

Shoppers whose credit isn't as good may have more success qualifying for that lower-rate, small-dollar point-of-sale loan than they would if they applied for a larger loan or line of credit.

Some shoppers may even be able to avoid paying interest altogether through buy-now-pay-later options. For example, Afterpay and Klarna don’t charge interest at all. The only fees you'll pay are late fees you incur when you don't make a payment on time or make a payment that's less than the required amount.

However, some point-of-sale loan options can be exceptionally expensive, particularly if you have less-than-perfect credit. Maximum APRs on many popular loan options run as high as 30%, which is several points above what most credit cards charge. So if you pay for several big purchases using point-of-sale installment loans, the financing costs will quickly add up.

Most point-of-sale lenders charge few, if any, fees, though. That’s a big improvement over other loan options that charge origination fees ranging anywhere from 3% to 8%. Term lengths on point-of-sale loans tend to be relatively short, often ranging from just three to 12 months. So if you’re on a tight budget, it may be difficult to repay your loan in such a short period of time.

And keep in mind that while buy-now-pay-later options don't charge interest, late fees can end up costing you more than interest payments. For example, if you pay one late fee during a two-month payoff of a $200 purchase, your fee payments would be equivalent to an APR above 100%.

Point-of-Sale Promotions

Some stores also offer installment loans with longer-term, interest-free financing. These deals are typically 0% APR offers, rather than deferred-interest financing, which makes them safer than many store credit card options.

Retailers often use point-of-sale promotions to make purchases appear more affordable. Casper mattresses, for example, tucks a 0% Affirm installment loan under its “Add to Cart” button, while Sephora displays an interest-free offer from Klarna underneath an item’s sales price. Similarly, Noemie helps soothe sticker shock by highlighting a shopper’s estimated monthly payments if they qualified for the lowest available APR from Bread.

Popular Point-of-Sale Loan and Buy Now, Pay Later Lenders

Although you may not be able to pick which loan provider works with your favorite retailer, it’s still a good idea to compare options before making a big purchase. If you aren’t committed to one retailer, the list of popular lenders may help you decide where to shop. APR and loan terms may vary, and are accurate as of Nov. 30, 2020:

Point-of-Sale Installment Loans

Buy Now, Pay Later Loans

The Bottom Line

If you’re considering a point-of-sale installment loan or buy-now-pay-later offer, it doesn’t hurt to check what interest rate you could get for a one-time store financing loan and compare it to the payments you'd have to make with a buy-now-pay-later option.

And while maximum APRs on some point-of-sale loans are high, many lenders offer exceptionally good deals. A point-of-sale installment loan may also be a good pick for you if you need interest-free financing, but don’t have time to wait for a new 0% APR credit card offer. Not all stores and purchases offer 0% financing, though, so remember to plan your shopping around the stores and lenders with the best deals.