The cost for a business to offer financing to their customers depends on the consumer financing company. Some firms put the cost burden on the consumer. Some finance companies put the cost burden on the business. Some consumer financing firms split that cost burden between the two.
Here’s how it works.
A consumer financing company charges the consumer interest during the repayment period. Let’s say, 3 years, at 17.99%. If the consumer pays off their loan early, the financing company may or may not charge an early pay-off fee. If a consumer is late with a payment, the consumer may or may not have a late payment fee. That’s how a financing company makes money from a consumer.
Some consumer finance companies charge their consumers an APR of up to 40% or higher.
A consumer finance company usually charges the business to offer its services. This service fee could be as little as 0% and, in some circumstances, exceed 30% or higher. The consumer financing company takes all the risk for the consumer to make their payments in full, thus, the retained fee may be a flat transactional fee, or a fee based on the consumer credit quality.
- The higher the credit quality, the higher the probability the consumer will make all their payments – the lower the fee.
- The lower the credit quality, the lower the probability the consumer will make all their payment – the higher the fee.
Some consumer financing companies offer same-as-cash options. For example: 24 monthly payments at $85 per month, with a 180-day same as cash option, so if paid in full on or before the 180th day, the consumer pays no interest. In these situations, the consumer financing company may charge the business an additional 3-25% of the financed amount, so the consumer has the benefit of no interest. If the consumer pays the full amount on day 181, interest is due to the finance company.
Some consumer finance companies offer a Reserve financing program, meaning the finance company holds a reserve dollar amount back from payment to the business, until the consumer makes their monthly payments and takes other factors into consideration.
For UCFS financing costs and more information, call United Consumer Financial Services today at 877-373-3482 or complete the form to the right.