Consumer Financing Versus Credit Card
Credit cards can provide convenience and make it easy to purchase almost anything they want or need. But repayment can be brutal if cash isn’t available to pay off the full balance within a month.
Whether adding a pet to a family, upgrading a house with a new fence or landscape lighting, buying a diamond engagement ring or a new mattress or furniture, paying for medical equipment – such as a CPAP machine – obtaining a medical procedure not covered by insurance, or installing a new HVAC system or home backup generator in an emergency – cash or credit card can help them secure what they’re in the market for.
But these purchases – and others like them – aren’t the equivalent to swiping a credit card for a $40 purchase. No, these consumer purchases are much more substantial and, oftentimes, seen as investments.
Do You Mention Low Monthly Payments to Every Customer?
- What payment methods do you currently offer?
- Do your customers or patients want your products or services but don’t have enough readily available cash?
Understanding the difference between consumer financing (fixed-term, low monthly payments) and revolving credit (credit cards) is advantageous to meeting more consumers’ or patients’ needs.
Without question, there are benefits to both fixed-term financing and revolving credit. But understanding the differences and knowing these facts can help you service more customers and patients.
Consumer Financing Solutions: 3 Factors to Understand Customers’ Payment Options
When selling products between $1,000 and $10,000, it’s important to understand your customer’s budget. These four factors can help you be educated to discuss payment option pros and cons with your customers.
1. Approval for the full amount: Which payment method helps you approve more customers or patients for the full dollar amount?
• Consumer financing: Fixed-term financing helps more customers or patients cover the cost for the full amount of their purchase.
• Revolving credit: Credit cards have limits and many consumers are already carrying a balance from month to month. That means they may not have enough open credit on their credit cards to make their purchase in full. In addition, many consumers need that open balance for their day-to-day living expenses.
2. Customers avoid credit card debt when using financing: Which payment method helps your customers save money?
• Consumer financing: Financing works like an auto loan – customers obtain their purchase right away and pay over time.
- With financing, customers make equal installment payments for a set number of months.
- With UCFS, customers can pay off their contract early with no fees and save on interest
- With UCFS, customers have a fixed interest rate. Some other finance companies change the interest rate based on a consumer’s credit quality.
- The finance charge is set when payments are made promptly.
• Revolving credit: If a customer doesn’t have cash to pay off their credit card purchase the next month, interest charges – on interest charges – on interest charges – can be brutal.
3. Repayment Success: Which payment method gives customers and patients the best opportunity to repay successfully and avoid credit card debt?
Not every payment method gives customers and patients the best opportunity to repay successfully.
• Consumer financing: Fixed-term financing gives customers and patients the best opportunity to repay their purchase in full. With a low, fixed amount per month that aligns with their monthly budget and a set end date, customers and patients can completely pay off the owed amount. Think: $96 for three years to purchase a needed mobility scooter or CPAP or Portable Oxygen Concentrator.
Additionally, with UCFS, the APR is set no matter what a consumer’s credit quality. Some finance companies increase the APR for lower-credit quality consumers. If a same-as-cash promotion is not met, interest kick ins.
Revolving credit: Credit cards are known for their low, minimum monthly payment requirements. If a customer doesn’t pay off the credit card balance in the next month, and keeps paying minimum payments, the customer is set up for years – a decade even – of revolving credit and compounding interest (interest on interest). Huge credit card debt!
In this time frame, interest could double the original purchase price. If a $4,000 purchase is placed on a revolving credit card, with 19.99% interest, with a minimal 3.5% monthly payment made, it will take 13 years to pay off the balance with an end total cost of $7,401.70! Click here to check out an online interest calculator.
As compared to consumer financing with three years of $149 monthly payments and costing the consumer $2,050 less than on a revolving credit card.
Additionally, if a consumer maxes out their credit card to complete the sale, they may not have room for other, essential spending. And, if a customer has poor credit, UCFS competitors frequently charge a higher APR.
BONUS: Approve more customers: Which payment method helps your business help more customers and patients?
“Seventy percent of our customers choose consumer financing. They’re approved in minutes and take immediate possession of their purchase. Our closing ratio has increased more the 50% – 60% and I get paid from UCFS in 24 to 48 hours.”
Mike, Business Owner, Cleaning Systems
• Consumer financing: What factors does a finance company use to evaluate credit to approve a credit application? FICO score? For sure. But down to what level of FICO? And does the finance company look at other factors?
UCFS approves more consumers for credit because of the many credit attributes used to evaluate a consumer’s credit, including if a down payment is being made, if auto-pay will be used, and if a co-buyer is on the application.
• Revolving credit: Credit card limits mean fewer customers and patients can obtain your products or services. That fixed spend limit may be less than the total cost of your service or product. This can leave a customer or patient without another option and force them to decline the sale.
Aligning your business, products, and services with a consumer financing solution can be the difference in serving more consumers – and gaining more business and revenue.
The Right Payment Option Helps Grow Your Customer Base
Are your payment options helping as many customers as possible and helping you grow your top and bottom line? Are you leading with low monthly payment each time you talk to a customer?
When you partner with UCFS, a leading provider of fixed-term consumer financing, you can help customers secure the products and services they want now through an option that is favorable to them and your business.
UCFS works with professionals in a wide array of industries to provide the best consumer financing services available today. Learn more about partnering with UCFS or get in touch with us directly today: