Consumer financing is a valuable tool. It can be used to increase your revenue and gain loyal customers. Although many large companies offer financing through consumer credit accounts, you may think these options are not available to you, but even small companies can offer these accounts to their customers. This is how consumer credit works.
What Is Consumer Credit
As a business owner, you have a variety of customers. Some of your clients can afford to pay upfront for large orders, while others cannot. Consumer credit allows all of your customers to make large purchases and pay for them over time. However, you receive your payment immediately from the finance company. Therefore, although your clients are paying smaller payments, you receive the full amount of the purchase, less a financing fee, right away.
Consumer credit can be broken into three groups: no-credit-check, primary and sub-prime programs.
Programs That Don’t Require Credit Checks
These programs are considered tertiary. The finance companies typically approve most or all of your credit applicants. The benefit for your customers is that their credit does not show that it was checked, which can impact their credit scores, and allow those with no credit or poor credit to gain financing. However, these accounts may be at higher risk than those in other programs.
No-credit-check programs can also be customized based on your needs, including your desired cash flow, and risk tolerance. Although you may be paid immediately, if any of your clients refuse to pay their debts, you could find yourself liable for them.
Primary Consumer Credit Programs
Consumer financing in the primary category is typically offered to clients with average or great credit. They typically have to meet a minimum credit score requirement, but they may be offered periods with no interest. They may also receive promotions. These benefits serve to attract individuals with great credit because the finance company knows they pay their debts on time. These accounts are less risky for the merchant and financing company.
If your customers have below-average credit, they may still qualify for sub-prime credit programs. However, they will need to provide documents that prove their income and address of residence. They may also be required to submit additional documents, such as personal referrals.
These accounts have greater risk than primary programs and lower risk than no-credit-check programs. However, these individuals won’t typically receive the promotions and reduced or no interest benefits that your primary customers receive. Almost 80% of consumer credit is sub-prime.
Consumer financing offers your clients purchasing options that can increase your cash flow, order sizes and customer loyalty. Research all the benefits of these financing options as you grow your business.