Shopping loans

Should you add a loan to your shopping cart?

The next time you shop online, you may be offered a new way to pay — a personal loan with fixed monthly payments. Instead of using cash or plastic at checkout, you provide some personal information and get a loan in minutes. Currently, such “point-of-sale” loans appear mostly on websites for big-ticket purchases, like mattresses, furniture or electronics. But they’re expanding into other retail areas, and loan providers plan to partner with brick-and-mortar stores. The loans are enticing, but there are downsides, such as high interest rates for people new to credit. 1 Convenience at a price Targeting millennial shoppers in particular, these lenders tout fast loan applications, no hidden fees and credit approval for those who don’t usually qualify. But access to credit comes at a price. While some retailers may offer zero-interest promotional rates, annual percentage rates from Affirm and Bread, for example, can be as high as 30%. A $345 handbag at Rebecca Minkoff will wind up costing you $385 if you pay for it with a 12-month loan from Affirm at an APR of 21%, the average rate for its borrowers, Affirm says. Not all shoppers get approved. Borrowers on the cusp of qualifying may get only a partial loan and have to pay some of the purchase price upfront. 2 How shopping loans work The process is similar to selecting a store credit card at checkout. The loan option might appear next to the purchase price or in your shopping cart. In the online experience, selecting the loan option will direct you to the lender’s website or a smartphone app. You enter a few pieces of personal information, typically your name, date of birth and last four digits of your Social Security Number, or in some cases, just your phone number. If you’re approved, the lender displays multiple loans with varying interest rates, monthly payment amounts and terms. You pick a loan, sign the agreement and finish checking out. Just like using a store credit card, the whole process takes anywhere from a few seconds to a few minutes. What consumers should know 3 Carole Reynolds, senior attorney at the Federal Trade Commission, recommends asking these questions before signing an agreement: What kind of financial product is it, and what are the terms? Many companies offer installment loans, which have fixed rates and payoff periods. Others offer leases, lines of credit or zero-percent financing for a limited time period. Each type comes with certain legal rights for consumers, Reynolds says. How does the loan impact your credit? Every time you apply for a loan, your credit information gets pulled, and the loan will appear on your credit report. However, some lenders will report your loan payments to a credit reporting agency, which could positively affect your credit score, Reynolds says. What’s the return policy? In case you have a problem with the item, find out if the retailer or the lender will be handling it, says Reynolds. Also check for a procedure for disputes if you get charged incorrectly or have other issues.