Consumer credit at the point of sale has changed dramatically in recent years. Merchants are constantly looking for ways to make their items cheaper to customers, from regular credit cards and retail branded cards to layaways and on-account purchases.

However, in recent years, a new financing option known as “buy now, pay later,” also known as point-of-sale finance or POS financing, has begun to create ripples in the retail business. Point of sale financing is a handy loan option that allows customers to make payments over time.

Retailers collaborate with third-party lenders such as Affirm, Afterpay, and Klarna, and then integrate their lending services within the checkout process.

Traditional financing has more stringent eligibility requirements, and many lenders provide a 0% annual percentage rate (APR) for a set length of time with POS financing. However, sale financing isn’t always the greatest solution, and it might lead to overspending and late fees.

What Is Point-of-Sale Financing and How Does It Work?

Point-of-sale financing allows you to make transactions without leaving the retailer’s website, making it a very handy option to fund specific purchases. Although many POS loans have a 0% APR for a predetermined repayment period, some lenders charge up to 30% – especially for less eligible borrowers. However, many point of sale financing lenders has less stringent requirements than banks and other lenders. Borrowers may still be required to supply their Social Security number (SSN) in order for the lender to perform a soft credit check, which does not affect your credit score.

Customers who have been approved can next choose from a variety of repayment options to choose a monthly payment that matches their budget. This could include three-, six-, or 12-month maturities, or even longer for significant purchases, depending on the lender. Alternatively, some financing businesses divide the purchase into four installments, the first of which is collected at the time of purchase, and the remaining installments are charged every two weeks.

When to use point of sale financing?

Point-of-sale financing is becoming increasingly popular among online sellers, but it isn’t right for everyone. If you’re looking for a way to finance your business, consider POS financing.

  • You intend to make a substantial, one-time purchase. If you want to buy a high-value item like a sofa or mattress but don’t want to pay the APR on your regular credit card, POS financing is a good option.
  • You don’t have a track record of good credit. POS financing, like retailer-specific credit cards, is especially well-suited to customers with no credit history. Many POS lenders offer lenient qualifying standards compared to traditional lenders, and some don’t even do a credit check.
  • Have the ability to borrow money at a low interest rate. Unless you have a credit card with a 0% APR, the interest rates offered via POS financing are likely to be lower than the alternatives. However, because APRs can reach as high as 30%, double-check the rate before committing.
  • You have no intention of returning the goods. The return process might be complicated by point-of-sale financing, especially if the shop does not give you a full refund. As a result, this form of loan should only be used if you intend to keep the item(s) purchased or if the lender offers a 30-day payment option.
  • Can afford to pay the bills. Before taking out a point of sale financing loan, make sure you can afford the installments, just like any other loan. Some lenders provide the payment amount on the item’s listing page, while others need you to go through the checkout process and select a payment period.

Requirements  needed to apply for POS financing

When you don’t have the cash upfront, POS financing is unquestionably useful. However, as with any financing product that has the potential to affect your credit score and overall finances, exercise caution while applying.

  • The effect on your credit score

A hard credit inquiry may or may not be required for point of sale financing loans. Read the tiny print before applying to see if the company will pull your information from the credit bureaus, which could affect your credit score. For example, Affirm merely runs a mild credit check.

Also, determine if the company reports to the credit agencies, which might have a favorable impact on your credit if you make regular on-time payments, or a negative impact if you fail to pay. Larger businesses, such as Affirm, are more likely to report your behavior to credit bureaus. Klarna may record negative activities such as nonpayment, however, not all bad actions are reported.

  • Payment on a monthly basis

Consider whether you can comfortably afford the monthly payment over the loan’s term. A $500 purchase might cost you $50 every month, but think about whether you really want to be on the hook for the next ten months. This decision may differ depending on the item; $50 per month for a new mattress may seem like a good deal, but $50 per month for new shoes you don’t actually need may not.

  • Returns

Before you take out a loan to pay for something, find out what the return policy is if you wish to return it. You can be stuck paying back some or all of the loan if there are shipping and/or restocking fees, or if you’re denied a full refund. Also, examine whether there are any penalties for paying off the loan early, which you’ll have to do if you return the funded item.

  • APR

Is it possible to get a loan with a 0% APR if you pay in a set number of installments? If not, figure out how much interest will cost you in the long run. If the APR is too high, you could be better off paying with cash or a rewards credit card (as long as you expect to pay it off within a billing cycle). You should also investigate what happens if you skip a payment or otherwise fall behind. If you skip a payment on a point of sale financing loan, you may be charged a hefty fee.

How to choose the best POS financing?

  • E-commerce is a significant sales channel.

POS financing is one of the most e-commerce-friendly loan solutions for your consumers if you do a lot of business online. Layaways are too inconvenient to give online, and branded store credit cards take time to approve. Applying for POS finance, on the other hand, takes only a few minutes and maybe completed directly on your website.

When online shoppers can obtain fast credit without having to leave the store, they are more likely to complete the checkout process and become paying customers.

  • Average Order Values are High (AOV)

Customers would definitely welcome the ability to break down their purchases into installments if your business already has strong AOVs. Not only does this provide consumers greater financial freedom and eliminate bulk payments, but point-of-sale financing has also been shown to improve order values even more. Because of different financing possibilities, some of Bread’s partners have improved their AOV by 155 percent.

Furthermore, according to a Forrester study, businesses that implemented an online point-of-sale financing option saw sales grow by up to 43 percent. This isn’t particularly surprising. Using point-of-sale financing, you may make your items more enticing and accessible to customers who can’t afford to pay in full.

People are more likely to complete a purchase when they know they can extend their payments out—and many may even buy extra while they’re at it.

  • Products are long-lasting and durable.

If you sell sturdy, long-lasting items like furniture or jewelry, point of sale financing make a lot of sense. Unlike consumables like toothpaste or cereal, customers tend to think over a purchase for a longer amount of time if it’s something they’ll be using for a long time.

Customers are also more likely to consider all of their options and spend more time evaluating different vendors. As a result, a shopper-friendly finance option like point-of-sale financing may be just what you need to stand out. When done correctly, it can help customers get through the checkout process more quickly.

  • You’re Having Problems With Cart Abandonment

If you’re experiencing trouble increasing conversions on your eCommerce site, POS financing may be able to help. High prices, combined with a lack of payment choices and shipping fees, are among the most prominent reasons for shopping cart abandonment.

Customers usually come to a halt when it comes to concluding a purchase and begin weighing the prices. This problem is alleviated by the availability of POS financing. Purchases are more accessible thanks to regular installments, and buyers are more likely to complete their orders.

  • You already have branded credit cards on the market.

If you’re already offering a private label credit card to your consumers (and they’re actually using it), that’s a solid sign that they’re interested in credit. Modern consumers, particularly millennials, are wary of credit and store-branded cards, as previously said.

As a result, point-of-sale financing can be a viable credit option for younger clients who want to buy with you but don’t want to qualify for a credit card. Consider it Credit 2.0. It’s a cutting-edge financing option that’s both convenient and adaptable, making it even more appealing to today’s shoppers.

  • You’d like to boost customer satisfaction.

Retailers must compete on experience in a world where consumers have more options than ever before. If you want to succeed in today’s retail environment, you must create a pleasant and convenient purchasing experience. While product availability and customer service are important factors, the checkout procedure is one that can have a significant impact on the buying experience. Read More: Free Guest Posting Sites

Customers will abandon your store and go elsewhere if they are unable to finish their purchases in the manner that is most convenient for them. You may avoid this by providing convenient payment choices, such as point of sale financing. This can greatly improve the checkout process, resulting in higher conversion rates as well as a better overall perception of your business.

  • Customers don’t have (or want) traditional credit options.

Payment cards and other forms of credit will continue to play an important role in many people’s financial lives, but you must keep in mind that they are not available to everyone. Furthermore, some people may just desire an alternative to traditional lending. This is where point-of-sale financing can help. You might be able to attract customers who don’t have access to standard credit by providing an alternative payment option. Furthermore, POS financing and closed-end credit options split payments down into predictable installments (for example, four fortnightly payments), helping buyers to budget for their purchases.

Where to get point of sale financing?

Here are some common point of sale financing options you might come across when making your next purchase:


Affirm is a point-of-sale finance startup that offers consumers installment loans. It is available at thousands of retailers. At checkout, the site provides three-, six-, or 12-month repayment plans, but these can vary depending on the value of the purchase; some purchases may also need a down payment—a sum payable at checkout. Customers may be eligible for a 0% APR, however, rates often range from 10% to 30%, depending on the borrower’s credit score. There are no hidden costs, such as late fees, prepayment fees, or account closure fees.


Klarna is another fintech firm that specializes in direct and post-purchase payment services. Customers pay in four interest-free payments, similar to Afterpay; the first is taken when the order ships and the next three are taken every two weeks thereafter; late payment costs of up to $7 may apply.

Klarna also offers a 30-day interest-free payment plan if you anticipate you’ll need to return any or all of your purchases. A six- to a 36-month loan with interest rates ranging from 0% to 29.99 percent can be used to fund purchases of $540 or more. Customers can also obtain a one-time payment card to use at merchants who do not operate with Klarna directly.


Afterpay, like Affirm, is a financial technology corporation that provides point-of-sale lending. Afterpay users pay in four, interest-free installments every two weeks, rather than three, six, or twelve months of financing. Customers will never be charged interest or fees if they make on-time payments for the specified payback period. Although there are eligibility requirements, qualifying customers receive fast clearance and do not have to wait for delivery.

The advantages of providing a simple and quick lending program to existing and future consumers are evident. Companies that provide point of sale financing  see an increase in sales, a higher average order value, and higher profitability.

The problem is that many POS financing companies demand a lot of money to set up and manage these programs. Customers are rarely charged additional costs by POS lenders for their convenience. Business owners, on the other hand, are charged “discount fees” ranging from 10% to 20% of the loan amount.

Lenders rationalize these discount rates as a way to recoup the costs of offering consumers reduced rates. However, the truth is that it’s just another fee that lenders collect for their services.

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