She Strengthens

The Rise of Instant Financing: A Double-Edged Sword

Seamless Shopping Experiences

Gone are the days of tedious online shopping experiences. With the rise of Instagram shopping and one-click checkout options, buying has never been easier. According to a recent study, we can expect an 81% increase in shopping via wearable devices and a 131% lift in shopping via voice devices in the next two years.

The Resurgence of Layaway Plans

In addition to streamlined shopping experiences, there’s been a resurgence of layaway plans, now rebranded as point-of-sale (POS) loans or instant financing. These services allow consumers to finance smaller items, from clothing to household objects, with payment plans that can be spread out over several months.

How POS Loans Work

POS loans come in different models, often claiming to charge no interest or fees as long as payments are made on time. However, these services wouldn’t exist if they couldn’t make money. In reality, most “no interest” offers are promotional or short-term, with some services having annual interest rates of up to 30%.

The Appeal of POS Loans

Retailers love partnering with POS loan providers because they make purchases more accessible to potential customers. Without the need for traditional credit checks, these services make it easier for consumers to spend, even if they don’t have the money upfront. According to Certified Financial Planner Shannon Lee Simmons, the stigma associated with using layaway options has decreased, making POS loans seem like a more appealing alternative to credit cards.

The Dark Side of POS Loans

While POS loans can be appealing, they can also lead to financial messiness. Simmons warns that these services can affect credit scores and debt-to-income ratios, leading to emotional stress and financial detachment. Research shows that unsecured personal loans, the kind offered by POS loan providers, were the fastest-growing type of debt in the U.S. in 2018.

Using POS Loans Responsibly

If you do choose to use POS loans, Simmons recommends imposing your own set of rules. First, know the terms of the loan, including interest rates and late fees. Second, run the numbers to ensure the interest is cheaper than financing through a line of credit. Third, prioritize and leave room for flexibility, avoiding nonessential purchases and limiting the number of POS loans taken out in a year.

Conclusion

While POS loans can be a convenient option for consumers, it’s essential to use them responsibly and be aware of their potential drawbacks. By understanding the terms and implications of these services, you can make informed decisions about your financial future.