Your fridge is on the fritz, your hard drive has a virus. The holidays are coming and you're just not ready. Unanticipated big-ticket purchases can hit your wallet hard.
If your credit cards are maxed out or if you're trying to avoid paying high monthly interest charges, another option may be in order. Enter point-of-sale financing, which provides a way for consumers to borrow money for specific purchases.
How point-of-sale financing works
When ordering online from a retailer with this type of financing, you'll find the option on the checkout page. Click it, and the provider will perform a "soft" credit review. (Unlike a full review, it doesn't show up on your credit report.) You'll quickly know if you're approved.
If you are, you'll be able to choose how to pay off the loan, including time frame and payment method — personal check, bank transfer, debit card, etc. You repay in installments, and while terms vary, the interest can sometimes be lower than that of your credit card, or even zero. Some retailers offer comparable loans in-store as well.
There are a handful of major players in this space, including Affirm, Afterpay, Splitit and Vyze, which was recently acquired by MasterCard. Here's a quick rundown of how they work, and which major retailers they work with.
The main players
Affirm partners with retailers like Walmart, Best Buy, Wayfair, Purple, Warby Parker and Casper. The annual percentage rate is up to 30%, depending on your financial profile, and you can select your preferred repayment schedule.
Read the fine print
Each provider offers a slightly different plan, and some customize plans for individual retailers. Before you complete the checkout process, take the time to read the terms of service. After all, you should be well aware of what you're signing up for. Some loans are zero interest and others charge up to 30% based on your financial profile. There are also penalties for late or missed payments, including fees and deferred interest. If you fall behind on your payments, you might not be allowed to take out another point-of-sale loan with that provider until your account is back in good standing.
Think before you leap
Point-of-sale financing can be a good alternative to using a credit card, especially if you need to carry a balance for several months and your card has a higher APR than the prospective loan. According to CreditCards.com, the average credit card APR is more than 17%. That interest can pile up very fast.
But before you take on a loan like this, assess your situation. Are you considering this option because your credit cards are maxed out? If so, consider putting off that purchase — especially if it's a big one. And be honest with yourself. Do you really need this item, or can it wait? If your home printer has stopped working, and you need to be able to print at home for work or school, that's one thing. But if you found a new couch to replace one that is functional but outdated, focus on paying down your credit card debt and treat yourself to a new couch once you've reached zero.
Point-of-sale loans can be a convenient way to make a big purchase. Just be aware of the potential pitfalls before you sign on the dotted line.