Bread loan review: Potentially low-rate financing for online purchases

Pros

• No prepayment penalty
• Fixed monthly payments
• Ability to apply for prequalification

Cons

• No refunds on interest already paid for returned items
• Can’t repay loan with a credit card
• Difficult to find participating retailers on its website

What you need to know about a Bread loan

Bread is a financing platform that allows you to make online purchases with participating retailers and pay for those purchases over time. Bread is not a direct lender though — when you finance a purchase through Bread, you’re actually applying for a short-term installment loan from Cross River Bank.

Bread finances items like furniture, technology, jewelry and other goods.

You can see if you prequalify, review loan terms, and use approved funds to check out directly on a participating retailer’s online store. But Bread doesn’t list all of its partners on its website, which could make it more difficult to research financing ahead of time.

Fixed monthly payments and rates

If you want to finance an online purchase, a Bread loan may help you budget by splitting the cost into equal monthly payments with a fixed interest rate. This way you’ll know exactly how much you’ll need to pay each month, and you’ll have a set timeline for when the loan will be paid off.

You may prefer that to a credit card, where you only have to make a minimum monthly payment, but you’ll likely pay interest on any outstanding balance and you won’t have a fixed end date for your debt. If you only make the minimum payments on your credit card, it will likely take you longer to pay off debt — and you likely end up paying more in interest, too.

Interest rates are competitive

Bread loans come with competitive interest rates — in some cases, you may be able to get a no-interest loan with Bread. But your interest rate depends on your credit profile and other factors, so you may not be offered the lowest rates if you have rough credit or no credit history.

Loan terms will vary depending on the retailer but may range from three months to 36 months.

Interest paid won’t be refunded with a return

While you can return an item you bought with a Bread loan, you won’t get back any of the interest you’ve already paid on it. This can cost you if you wait awhile return your purchase.

Loan payments with a credit card aren’t accepted

You can make payments on a Bread loan with a check, debit card or your bank account. Since you won’t be able to pay with a credit card, you’ll need the cash to pay for your loan every month. That’s not necessarily a bad thing, though, since you may be less likely to be tempted by a purchase you can’t afford.

Check your potential rate before you commit

You can see if you prequalify for a Bread loan and preview possible terms directly on a participating retailer’s website before you decide to make a purchase. Checking your potential rate won’t hurt your credit scores. Just remember that a preapproval isn’t the same as a final loan approval, and if you formally apply and are approved, your terms could change.

A closer look at a Bread loan

Here are a few other things you should know about Bread loans.

• Payments are reported to credit bureaus. Since Bread reports to the credit bureaus (it doesn’t specify which ones on its website), your credit scores may be affected with a Bread loan. This can go both ways though: Making late payments can hurt your scores, but making your payments on time can help you build a positive credit history.
• Multiple loans are possible. You can take out more than one Bread loan at a time if you make multiple purchases.

Who a Bread loan is good for

A Bread loan may make sense if you don’t have the cash to pay for a big online purchase upfront but want to avoid using a credit card (or don’t have one). It’s also a good option if you’re able to qualify for a low interest rate and are confident that you can make your fixed monthly loan payments until the loan is paid off.

But if you like the freedom of making online purchases from any merchant you choose, Bread might not be the best option. Since you can only get a Bread loan from participating retailers, this could limit where you shop online or what types of items you can buy.

If you look at your budget and decide a Bread loan isn’t right for you, consider saving up for the item you want instead, so that you won’t have to worry about interest charges or missing payments.

How to apply for a Bread loan

To make a purchase with Bread, you’ll need to apply directly through a participating retailer’s website. You may find Bread’s financing option on the retailer’s homepage, a financing page or when you check out.

If you aren’t fully committed to making a purchase yet and want to see what rates you may be offered, Bread also allows you to apply for prequalification through a participating retailer’s website. To check your potential rate, you’ll need to enter your full name, email address and mobile phone number. (Just remember that prequalification isn’t a guarantee that you’ll be approved for financing.)

Next, Bread will send a four-digit token to your mobile phone. Once you enter it, you’ll be asked to complete the prequalification form with some additional personal information.

If you prequalify, you’ll receive your proposed loan amount and terms (you may have several to choose from). If you agree to a loan term, you can select it during checkout and apply for final approval.

Not sure if Bread financing is right for you? Consider these alternatives.

• Afterpay: Afterpay is another buy-now, pay-later lender, but it lets you split your purchase into four equal installments. You won’t pay interest if you pay on time.
• Acima: If you think you’ll pay off your purchase early, Acima may be a good fit. It works similarly to Bread but offers an early payoff discount.

*Approval Odds are not a guarantee of approval. Credit Karma determines Approval Odds by comparing your credit profile to other Credit Karma members who were approved for the personal loan, or whether you meet certain criteria determined by the lender. Of course, there’s no such thing as a sure thing, but knowing your Approval Odds may help you narrow down your choices. For example, you may not be approved because you don’t meet the lender’s “ability to pay standard” after they verify your income and employment; or, you already have the maximum number of accounts with that specific lender.