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Here’s the lowdown on those payment plans you see when you shop online, like Afterpay and Affirm


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Point-of-sale (POS) loans have become increasingly popular, with offers from companies like Afterpay, Affirm, and QuadPay popping up on many retailers’ sites.
POS loans offer the opportunity to buy a product now and pay for it in installments, like layaway but in reverse.
These short-term loans may be beneficial for consumers buying large items, like furniture or appliances, who have the money in their monthly budget to make payments. But they can also encourage poor spending habits.
personal finance coverage.

The concept of “buy now, pay later” has long had appeal. Credit cards make it easy. But, increasingly, according to research from Bankrate.com, people are choosing alternative point-of-sale (POS) lenders to fill that financial gap.

A POS loan is essentially the opposite of layaway. With layaway, you pay for your item over time and then take it home when you’ve cleared your bill.

With a POS lender, you get your item first then pay for it over a specified period of time. Companies like Affirm, Afterpay, Klarna, and QuadPay, are among those offering POS lending.

These services are widely available, too. Says Ted Rossman, industry analyst for CreditCards.com, “Some of them are linked to participating retailers (such as Affirm, which partners with Walmart among others, and Afterpay, which partners with companies such as Forever 21, MAC Cosmetics, and Billabong to offer loans). Others (like Klarna) can be used at any website (they give you a ‘ghost card’ number to input at checkout).”

But like any financial product, it’s important to do a deep dive first to find out if it’s right for you.

How are POS lenders different from credit cards?

First of all, POS lending is only possible through certain retailers, while credit cards can be used to buy virtually anything.

“Additionally,” says Leslie Tayne, a debt resolution attorney with the Tayne Law Group, “the amount you’re borrowing is based on your purchase with point-of-sale lending, rather than on your credit limit. Interest rates can be similar on the two and funding is immediate.”

Your loan duration will vary based on the lender; it can be 30 days, a few months, or one or more years. Borrowers make monthly payments until their final payment comes due or they pay off the loan early.

Also, opening a credit card is a hard inquiry that shows up on your credit report, while point-of-sale lending is just a soft inquiry.

Finally, POS lenders are underwriting the borrower on each new purchase, which protects them from extending too much credit. Credit card companies, on the other hand, extend a line of credit to consumers that renews as the balance is paid off.

Know what you’re getting into

Make no assumptions and do your research to be clear on what each lender offers before signing on for a loan. Each lender is different.

For example, with Klarna, you have no interest and no fees, and you spread the full purchase price over four bi-weekly payments. There is no credit check, and you can pay off the full …read more

Source:: Business Insider

      

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