How Point-of-Sale Loans Differ from Other Types of Lending

When consumers want to finance a large purchase, there are several types of lending options available. Personal loans and credit cards are traditional ways to borrow money, depending on your credit history and score. A high credit score and established history will generally result in credit approval with a reasonable interest rate. A point-of-sale (POS) loan is another option that can help with expensive purchases by breaking them down 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. 

Why use a Point-of-Sale loan? 

POS loans can be used for almost anything—from clothing to gym equipment. These buy now, pay later plans can be seen on a multitude of websites. Signing up for a POS loan is generally quick and simple, with a soft credit check and instant approval or denial. It’s a convenient method for making large purchases, often with lower interest rates and fewer fees than other types of lending. (Read more about fees associated with POS loans) Three of the most popular online financing companies are Affirm, AfterPay, and Klarna.


Known for partnering with popular fitness companies like Peloton and Mirror, Affirm splits purchases into monthly payments for three, six, or twelve months, depending on the retailer. Interest rates through Affirm can be as low as 0% or range as high as 30% APR.


AfterPay is used by many retail companies, including Anthropologie, Forever 21, Levi’s, Urban Outfitters, and more. Loans offered through AfterPay can be used on order totals between $35 and $1,000, and there are no additional fees or interest if the customer pays on time. Payment plans are split into four bi-weekly installments, meaning that a $100 pair of shoes would be split into four installments of $25.


Other major companies, like IKEA and H&M, use Klarna as their point-of-sale loan partner. Klarna lets consumers choose from paying in full at a later date, four bi-weekly installments, or monthly installments. It also charges late fees of up to $10 and up to 19.99% APR on purchases.

How is a POS loan different from other lending types?

POS loans often differ from other loan types in convenience and size. Personal loans and credit card purchases function similarly to POS loans because you immediately receive your item, then repay the lender (not the original merchant). In contrast, store layaway plans of the past required all installments to be paid before you could take your purchase home. POS loans are also convenient because the application process is simple and streamlined. By creating an account with the online financing company and entering some personal information, you can receive a loan decision in minutes. Personal loans and even credit card applications are generally a longer process. 

Another major difference is that credit cards are a form of revolving credit, meaning that as debt is repaid, credit is restored and can be used again—much like a revolving door. Personal loans and POS loans, however, are issued for a set amount. Once the loan amount is repaid, the agreement is complete and any other money needed would require a new loan. Personal loans and credit cards can also typically cover larger amounts than a POS loan, depending on a

Advantages and disadvantages of POS loans

Finding a POS loan that doesn’t charge interest is a major advantage over personal loans or credit cards. The easy application, instant decision, and clear-cut payment plan also simplify the POS loan process, making it an appealing option for many people. If you know you can afford the future payments, a POS loan can be a good way to make large purchases—like a Peloton or a new bed—more affordable.

As with any type of lending, it’s important to read the fine print and familiarize yourself with the terms of your POS loan. Hidden fees and high interest rates can turn what seems like a convenient purchasing option into an expensive accumulation of debt and a potentially damaged credit score. Even with low payments and reasonable interest rates and fees, any loan is still borrowed money. Consider how essential your purchase is and whether you need it right away. If you don’t have the money readily available, it may be wise to create a personal budget and make the purchase when you can afford it.