What is Point-Of-Sale (POS) Financing and How does it Work?

EPF Last Update: June 3, 2020

Whether it’s the latest-and-greatest laptop you’ve been eyeing online, or the washer and dryer combination in the flyer of your local big-box store, you’ll notice retailers are adopting a new financing platform to make these big-ticket items more attainable.

Point-of-sale financing (POS).

Rather than pulling out your credit card to finance your next retail purchase, Fintech firms are offering installment loans right at the checkout counter. Instead of analyzing your credit score to decide whether or not you qualify, these companies use advanced algorithms to help quantify your creditworthiness. In a matter of minutes, they review your checking account behavior and financial history to decide whether or not you’re a good fit.

But here’s the important question.

Even if you are approved, should you use POS financing for your next purchase?

Is POS Financing Manipulative?

We all know that increased access to credit can lead to impulse buying and overspending.

So, does POS financing do more harm than good?

Well, can’t say that these companies are scammers and they do provide a great financing alternative if the item is needed right away. However, you should be careful before signing on the dotted line. When you’re at the checkout counter and there’s a lineup of people behind you, you don’t have time to read the terms and conditions of the loan and educate yourself on the fees.

So, before you opt for POS financing, we have a few recommendations to consider:

  • Choose your desired product. If you have a desired product in mind, write it down or make a note. As long as it’s not an emergency and you don’t need the item right away, move on to the second point.
  • Apply for a personal loan. Even if you have bad credit, there are plenty of lenders who are willing to provide unsecured personal loans. Moreover, many applications are processed within 1 to 3 business days, so the added wait is minimal.
  • Choose the offer with the lowest APR. Remember, personal loans have APRs that range from 5.99% to 35.99%. If you a good credit score, obtaining financing near the low-end of the range won’t be a problem. If you have bad credit, your APR will be higher, but it is possible to get a personal loan with an APR of roughly 10.00%.

If I have Bad Credit, is POS Financing a Viable Option?

While an unsecured personal loan should always be your first choice, POS financing is a viable option after you’ve exhausted all other resources.

What makes POS financing so attractive is it offers fast approval and no checking of your credit. However, APRs are typically in the 30.00% range, so interest costs will add up quickly. If you have bad credit, obtaining a $20,000 loan with no credit check and easy approval usually isn’t an option. Thus, if this sounds like your circumstances, a POS loan may be a good fit.

If you have good credit, however, there are plenty of unsecured loans that offer much lower APRs. For more information, check our list of the best personal loans for good credit.

How Does POS Financing Work in Practice?

If you decide POS financing is right for you, we want you to know how the process works.

When you make a purchase – either in-store or online – retailers use the POS lender’s technology to merge the platform with its payments system. From a retailer’s perspective, integrating the service allows them to immediately receive proceeds from the sale and transfer credit risk to the online lender.

To set up an account with the POS lender, you usually provide your name, date of birth and your phone number. Sometimes, the platform will also ask for the last four digits of your Social Security number. Once your account is approved, you can analyze your APR and the repayment terms. After you agree, then you proceed with the purchase. After the transaction is finalized though, instead of making payments to the retail store, you deal solely with the POS lender. Through your account portal, you can monitor your loan balance and contact the service with any questions you may have.

But what if you decide to return the item?

Well, the process can get a little tricky. Because returns are handled solely by the retailer, the refund is administered by the store where the item was purchased. But, because your loan payments are processed by the lender, the retailer needs to notify the lender of the return. Once the information is synced, it can take anywhere from 3 to 45 business days for the refund to show up in your account. While you’re waiting for the refund, you still have to make your monthly payments and interest charges may apply during the refund period.

What are Some Popular POS Lenders in the Marketplace?

Some of the major players in the POS lending space include Affirm, LendingUSA and Klarna.

Based out of San Francisco, California, Affirm partners with online retailers such as Warby Parker, Wayfair and Expedia. Its APRs range from 10.00% to 30.00% and you can opt for repayment duration of either 3, 6 or 12 months – though duration up to 36 months are available at select stores. As well, Affirm has no minimum credit score requirement and your repayment behavior is reported to Experian – a leading U.S. credit bureau.

LendingUSA offers APRs that top-out at 29.99%, however an 8.00% loan origination fee is applied to each purchase. Loan duration range from 3 to 5 years and financing is only available at merchants in the medical, pet services, funeral and consumer services industries.

Klarna offers two types of financing options: If you repay the loan in-full within 30 days, you don’t incur any interest charges. For longer-term financing, you can opt for a line of credit that’s repaid within six months. As well, its APR for standard purchases is 19.99% and late payment fees can range from $10.00 to $35.00.

What are The Pros and Cons of POS Financing?

To decide whether a financing is option is right for you, it’s best to perform cost-benefit analysis.


  • Easy way to obtain financing. With no minimum credit score and funds available right at the checkout counter, POS financing is an easy way to pay for big-ticket items.
  • Great for borrowers with no credit history. If you don’t have a verifiable credit history, it can be difficult to obtain financing through other means. If personal loans or credit cards are out of reach, POS financing serves as a great alternative.
  • Ease of use. As is the case with many mobile platforms, POS technology is easy to use and provides seamless access to the financing you need. Your APR and repayment duration are clearly presented and you can finalize the transaction with a click of a button.


  • High cost of borrowing. With APRs upwards of 30.00%, interest costs will add up quickly. For example, if you use Affirm to purchase a queen-size mattress from Casper for $1,095 – assuming a 30% APR repaid over 12 months – you’re looking at $186 in total interest paid.
  • Risk of overspending. Like we mentioned above, having funds at your fingertips may cause you to spend beyond your means. If the habit gets out of hand, you can quickly find yourself in a vicious debt trap.
  • Complicated terms and conditions. All loan agreements have terms and conditions that require time to fully understand. At the checkout, you won’t have time to compare origination fees, late payment fees, return fees, how repayment affects your credit score or whether your data is shared with third-party vendors; there are plenty of issues that deserve consideration and a few minutes at the checkout counter usually isn’t enough.


Before you choose POS financing as the means for you next big purchase, you should consider the pros and cons of the product. While it’s an easy way to obtain financing and provides a great alternative for borrowers with bad credit or no credit, we recommend you tread carefully before taking the plunge. When a lender becomes the middle-man between you and the retailer, it adds another layer of complexity to the purchase – making returns especially difficult. If you have good credit, we recommend you consider a personal loan. Through the links above you’ll find plenty of reliable options with low.

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