Myriam Masihy

Consumers Turning to Point of Sale Loans

Farid Sandoval loves his 2017 Subaru, but he wanted to make some upgrades to it. The college student though lives on a tight budget.

He didn't want to add debt to his credit card, so he's turned to what's called a point of sale loan using a start-up company called Affirm.

The company says their loans can help people establish credit or help repair bad credit. You can use them to purchase anything from a mattress to medical procedure.

“You’re applying for a loan and then you get an answer within seconds,” Farid said.

Farid demonstrated the online process where in a few seconds he could borrow even more money from the company when shopping on his favorite auto parts website. He was immediately approved for $349.

“And it will give you the monthly payments,” he said.

But that loan isn’t cheap. All three payment options charge at least 29.9% interest.

“I would like to have it lower, but it’s just things that I did in the past messed up my credit,” said Farid.

Affirm says it offers loans from zero to 30 percent APR based on a person’s credit score. You pay back the loan over three, six or 12 months. And the company says it doesn’t charge late fees or service fees.

Farid says  he says the nearly 30 percent interest rate for the loan is the same as his credit card’s rate. He says he plans to continue using this company hoping to slowly improve his credit score while enjoying his upgraded Subaru.

Eight loans and a few hundred dollars later, Farid has the upgrades to his Subaru he’s always wanted.

“I think it’s bad in that it does give people the opportunity to spend outside of their means,” said Alberto Gutierrez who is a member of the National Association of Insurance and Financial Advisors.

He says consumers need to think hard about what they’re really spending when paying 29 percent interest.

“All these banks and these different companies are in the business of making money and the only way they make money is by lending money and charging interest rates,” Gutierrez said.

Affirm says if a point of sale loan isn’t paid on time, it can hurt your credit score and affect your ability to get future loans. Delinquent accounts might also be sent to collection agencies.

You can find Affirm at more than a thousand retailers like Wayfair and Expedia.

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