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You may have heard of Afterpay, Affirm, or Klarna while shopping with popular online retailers like Revolve, Forever 21, Sephora, Nike, Adidas, and more. These programs partner with thousands of your favorite brands to offer you a “point-of-sale loan” that finances your purchases without the use of a credit card, making your shopping sprees more affordable. With promises of interest-free plans or zero credit checks, it can be all too tempting to use any of these installment programs, especially if you’re trying to avoid using a credit card.

But is it really good to use them?

The answer isn’t quite a simple yes or no – it depends.

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The Good: Instant Approval, Interest-Free Payments

The perk of all of these point-of-sale loans is that the loan is restricted to one specific purchase, which reduces the temptation that a store credit card or regular credit card typically comes with. All of them also share the same benefit of 0% interest if you pay it off within the agreed payment schedule, which makes these point-of-sale loans enticing for those who don’t have much debt and can commit to paying the purchase off.

Afterpay offers payment plans consisting of 4 bi-weekly interest-free payments and requires no credit check. It is generally available for purchases $1,000 or less, which would make a lot of sense, only having the option of 4 equal payments. You make your first payment at the time of your purchase, which means you have 3 remaining.

Similar to Afterpay, Klarna offers monthly or bi-weekly installments but allows you to begin paying at a later date, similar to a credit card. Unlike Afterpay, Klarna checks your credit. 

Affirm gives you the option of a 3, 6, or 12-month payment plan (and sometimes more, depending on the cost of the purchase), but checks your credit as well. However, Affirm does not charge any late fees, service fees, prepayment fees, or hidden fees, unlike Afterpay and Klarna (more on this ahead).

Both Affirm and Klarna partner with more high-dollar companies as well as auto and home furnishing companies, which can make new furniture or fitness equipment much more affordable. However, you are subject to a quick credit check before instant approval.

The Bad:

Most obviously, accumulating more debt to pay off is always a drawback.

But here’s a more sinister pitfall: while Afterpay’s zero credit check sounds great, it can be horrendous in the hands of teenagers and young adults who’ve yet to master credit responsibility. If you miss a payment with Afterpay or Klarna you are hit with a late fee, and continual late payments continue to go up in fees until you hit 25% of the purchase price. You can imagine how quickly that can skyrocket on a bi-weekly payment schedule.

With Affirm, if you don’t pay off the amount within the agreed timeline, you will be charged interest, which is determined upon approval – it’s typically around 19.99%, but it depends on your credit. While they don’t charge late fees, the late or missed payment is likely to affect your credit score.

Point-of-sale loans often encourage irresponsible spending habits, and using them can serve as a rabbit hole to unwelcome debt. The bottom line is that all loan companies are counting on you to be late on payments so that they can profit from late fees and interest. It can be “free” money if you pay it off in full by the agreed date, but more often than not, loans always come with a price, and we should always remember that before using one. 

The Ugly: Irresponsible Spending Equals Tons of Payments

If you’re not keeping track of your financed purchases, you could easily get carried away and create some intimidating mountains of debt. Because many of these payment plans are billed on a bi-weekly basis, these multiple payments could easily add up, resulting in a few hundred dollars a month, equivalent to a credit card payment or more. Imagine one purchase of $250 here, another $100 there, and $500 elsewhere. Break those down into 4 bi-weekly payment plans, and you’re getting billed $62.50, $25, and $125 every 2 weeks for 2 months. While that may sound like a lot, it can definitely add up within that two-month time period should you decide to make even more purchases using installment programs.

Considering that the average minimum monthly payment in America is around $123.88, having multiple point-of-sale loans out at once can really hinder you from effectively paying down any other existing debt. While point-of-sale-loans offer zero interest, it’s the existing debt with interest that can really throw a wrench in your debt payoff plan, but stack additional credit balances on top of that and you’ve got a debt behemoth to deal with.

The Verdict: Use Responsibly and Exercise Caution

Just like with credit cards, if you use point-of-sale loans responsibly, you can strategically find a way to “have your cake and eat it too.” These loan companies make it affordable for you to get a $2,200+ Peloton ($58 a month for 39 months with Affirm), or finally commit to that $100+ bottle of SK-II facial essence (4 payments of $24.75 with Klarna). However, exercising mindfulness when spending is the key to use these kinds of financing options in a way that doesn’t further complicate your financial goals.

Using Afterpay, Affirm or Klarna every so often for planned purchases should be okay, as long as it’s in moderation, and you’ve also got your existing debt under control. The issues arise when you’ve used it for multiple purchases and have multiple payments being deducted out of your bank account.

Do you use Afterpay, Klarna, Affirm or any other kind of installment program for your online purchases? How often do you use them? On average, what does your payment schedule look like? Tell me all about it in the comments below! If you liked this post, be sure to subscribe to my newsletter and follow me on Instagram for more budget-friendly tips on fashion, beauty, and more.

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