Last editedApr 20223 min read
Credit comes in many forms, one of which is point of sale (POS) financing. Like other types of credit, POS financing offers a way for customers to break the cost of a large purchase down into smaller payments. So, what is POS financing, and how exactly does it work? Here’s what you need to know.
Ecommerce POS financing explained
Also called POS lending, POS financing is a form of short-term loan allowing consumers to make a purchase and then pay the cost in installments. Banks, credit unions, and third-party lenders all offer forms of POS financing. While this type of installment payment plan lends itself well to big-ticket expenses like vehicles, furniture, and travel packages, it can apply to smaller purchases as well.
For consumers, this type of plan is appealing because it gives them immediate access to the products they want without full upfront payment. Interest rates tend to be lower with this type of loan than with a credit card, provided they meet the lending criteria.
POS financing is closely related to BNPL, or buy now, pay later, plans. With BNPL, lending requirements are far less stringent because the amount borrowed is typically smaller. Point of sale loans require a credit check, interest rates, and decent credit score for approval.
How does ecommerce POS financing work?
Interest rates, terms, and conditions will vary depending on the POS loan provider. However, in most cases this payment option can be selected from an ecommerce retailer’s checkout page. The customer will be redirected to a simple form where they can fill in their details for a soft credit check and approval. While the lending requirements are stricter than BNPL, they’re still less stringent than a bank loan.
Some POS financing will be interest-free, while others come with a 30% APR or more – so it’s always important to check the fine print as a consumer. Once approved, the customer can pick a monthly payment plan to fit their budget. The cost is spread out over a series of months or even years for larger purchases. Payments can usually be made through a mobile app or on the lender’s website, which means there’s no need for the ecommerce retailer to do anything else once payment has been received.
What are the advantages of ecommerce POS financing?
For retailers, this type of payment can attract a wider range of customers, including those who may not have the cash to finance more valuable assets upfront. For consumers, ecommerce POS financing gives quick, easy access to the cash they need without a lengthy approvals process. Payment plans are flexible in comparison to bank loans, without the temptation of a large credit limit on a card. POS loans are also a good option for younger shoppers who might not have had the chance to establish a credit history.
What are POS financing companies?
There are some banks and credit unions that work with retailers to offer this type of financing. However, many small businesses work with dedicated POS financing companies. These third-party companies specialize in POS loans, allowing businesses to set up an account and embed a payment link directly into their checkout page. Whenever a consumer chooses this payment option, they’ll create their own unique account with the lender. There’s no need for the retailer to chase up on payments, as all of this is handled by the third-party POS company.
Here are a few of the main POS financing partners in the USA:
Affirm specializes in installment loans, with a choice of three, six, or twelve-month repayment terms depending on the value and size of your purchase. Some purchases will require an initial down payment at the time of checkout. Affirm customers can make purchases using a virtual card once they’ve created an account.
Afterpay is another popular POS financing company, specializing in the Pay in 4 model. This simply means that customers pay off their purchases in four interest-free installments, every two weeks.
Klarna is associated with the BNPL pricing model, offering a similar setup to Afterpay where customers can make four interest-free payments. However, it also offers interest-free options where you can pay off your purchase within 30 days with greater flexibility. For larger purchases, Klarna’s POS financing options include loans with terms between six and 36 months, though interest rates do apply.
Perfect for on-the-go purchases with greater flexibility than traditional loans, POS financing is a growing trend to watch.
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