Loans can be a life-saving tool, but misuse of them can be devasting to your financial future.
In recent years, certain loans have become easier and easier to get. Point-of-Sale financing gives customers the option for quick and easy loans.
What is Point-of-Sale financing? How does it compare to other loans?
Let’s discuss the pros, the cons, and the differences.
What is Point-of-Sale Financing
Many lending organizations have aimed to create a faster, easier, and more simple form of personal loans out onto the market.
This move has many underlying motivations. This ranges from the uncertainty of younger generations regarding credit to keep up with the popularity of online shopping.
Point-of-Sale financing works by giving customers a simple extra option on checkout. By putting in their information, they can be, in minutes, approved for a special loan made for whatever they are purchasing.
Point-of-Sale financing will often be a part of an offer by special companies that work alongside retailers. It is a very common option for many online sales that will appear right as you checkout.
The Pros of Point-of-Sale Financing
Point-of-Sale financing has proven to be a popular and easy method of credit. Here are two solid points in favor of Point-of-Sale financing.
1. A Good Step to New Burrowers
Being approved for Point-of-Sale financing can be quick and easy. In many cases, there is no credit check or barrier to entry. Often it is a simple review of purchase history or other simple measures of good credit.
This can be great for those with little to no credit. Point-of-Sale financing can be a gateway into more liberal use of loans and credit.
2. The Power of Convenience
There will be plenty of times where you are short of a big ticket item that you cannot wait for. Need a new mattress or a vital home appliance?
A one-time item like that would not seem worth applying for an entire credit card. This allows Point-of-Sale financing to come in and get you through this one major need.
The Cons of Point-of-Sale Financing
Like all forms of credit, there are risks to Point-of-Sale financing. Keep the following in mind when thinking about what form of loan works for you.
1. High-Interest Rates
Point-of-Sale financing works as a short term credit solution. It is perfect for those one-time items. Due to this use, it often comes with some very high-interest rates.
These rates make it an awkward method to use for frequent purchases.
2. The Temptation of Overspending
Having a simple and easy to acquire credit loan can be a dangerous thing. The temptation gets worse with each offer, often in so many locations each time you shop for an item.
Resisting the temptation to make Point-of-Sale financing your go-to method of payment can be hard.
3. Return Policies
If you do end up needing to return whatever it was that you paid for with Point-of-Sale financing, you may run into some problems.
With the high-interest rate, if you did not return the item for an immediate refund, you may have collected some interest payments.
As well, not all stores give a full refund, which will only add to the extra money you had to pay for an item you ended up not wanting or needing.
Comparing to Other Loan Options
Point-of-Sale has its benefits, but how can you tell whether it is the right way to borrow money? Each situation can have a different answer, so let’s compare the possible differences.
1. Credit Cards
Credit cards are for everyday life, it was the reason for their creation. With a credit card, you can go in and out with your purchase with little downtime.
While this is similar to Point-of-Sale finance, a credit card has better interest rates because of it.
Both credit cards and Point-of-Sale finance have a similar range of APR. In regards to Point-of-Sale finance, the limit on the amount of money you can get depends on what you purchased. A credit card can have a wide variety of limits.
You must make payments on credit cards each month. Point-of-Sale finance is closer to a regular personal loan and has a period of payment. This period is often a year or more.
Both credit cards and Point-of-Sale finance give you access to immediate funds and both incur a late fee for missing a payment.
The biggest difference between the two comes from the credit score checks. Point-of-Sale finance has a strong advantage as it does not do a hard credit check to give you access. Credit cards can make a hard pull on your credit.
2. Other Personal Loans
A personal loan of any type has any purpose but is often used for more elaborate expenses. These expenses can be for debt consolidation, medical expenses, or other large purchases like a house or car.
While Point-of-Sale finance can be for any purpose, it is only used when offered. Not everything can have Point-of-Sale finance.
The limits of both Point-of-Sale finance and other personal loans varies on what you need. Other personal loans tend to be higher on average due to the larger items people take them.
The APR maximum of both personal loans and Point-of-Sale finance are similar, but personal loans tend to avoid having 0% APR, while Point-of-Sale finance can have 0%.
Other personal loans, unlike Point-of-Sale finance, can have a waiting period on when you receive the funds.
Both loans have late fees for missing a payment, but other personal loans can also have an Origination Fee.
Both loans can take a soft pull from your credit, but many personal loans also take a hard pull off of your credit afterward.
The Comparison Conclusion
The basic idea is Point-of-Sale financing comes with large retail purchases. They are great for one-time purchases that you need without diving into a credit card.
Credit cards are great for everyday purchases.
For everything else, there are personal loans.
Clearing Finance Confusion
Now that you understand the differences between Point-of-Sale financing and other types of credit and loans, you can make more secure decisions in your financial future.
Interesting in learning more about a variety of financial issues? Bonsai finance has a great Learning Center to keep you well informed!
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