Although emergency savings are an option, not everyone has the funds on hand to deal with life’s challenges. So, to fill the gap, you can consider thinking about the benefits of consumer finance.
First of all, what are consumer financing programs? Think of it like this, consumer finance gives credit to a customer for any personal use or even for their homes. Companies offer finance to customers in a variety of ways, including credit cards, leasing plans, secured and unsecured personal loans, and more.
In fact, for mid- to high-ticket items, consumer financing accounts for about 25% of transactions made at checkout. This is why it’s become more important to understand how consumer financing works & how it can benefit you.
Understanding Consumer Financing: How Does It Work?
What happens with consumer financing is that consumer finance companies provide you with access to money for purchases or other personal needs. At that point, you’ll agree to repay a loan over a predetermined length of time in exchange for an upfront payment of a certain amount of money.
Based on the type of consumer credit, there could be a fixed or variable interest rate that would apply to your loan. So, the total payment you’ll have to make to a consumer financing company is based on the loan amount, interest rate, and repayment period.
How Does Consumer Financing Differ from Traditional Payment Forms?
In the case of traditional financing and payments, you’ll usually have to give back all the money upfront. Whereas, one of the advantages of consumer credit is that it gives you the flexibility to pay for services in monthly payments, which frequently makes it the best option when making investments.
By spreading out the amount across several payments, consumer financial services help customers save money for other needs or emergency savings. This way, you can feel more secure financially and have more money accessible to you. Moreover, there are consumer finance companies that can offer you competitive rates so that you can choose the payment plan that works best for you.
Types of Consumer Financing: What Options Do You Have?
There are quite a few consumer finance examples that you should consider before moving forward with any option. Remember: each consumer loan type has its advantages and disadvantages so choose the one that suits you the best.
Here are the consumer financial services that you can take a look at:
Credit Cards
Given their popularity, credit cards are the most widely used form of consumer finance. They require less paperwork and provide consumers with rapid and simple access to funds. Credit cards are an affordable option for both customers and businesses because of their cheap processing fees.
When you borrow up to your credit limit, you can do it at your speed as long as you make the minimum payment due. In addition to other possible fees like late payment penalties, you will pay interest on the amount you owe.
Personal Loans
A personal loan is a type of installment loan that has a monthly payment and fixed interest rate. One of the benefits is that the entire amount is given to you at once, and you can spend it for almost anything.
After the money is received, you pay the debt back in full over the chosen term by making regular monthly installments with interest. However, if you have a good credit score, it’s possible to have a lower interest rate.
The good thing about personal loans is that they can be funded in as little as one business day—much faster than many other loan types—and have fixed interest rates that are lower than credit cards.
Consumer Loans
A consumer loan refers to any form of loan extended by a creditor to a consumer. However, they can be of two types: unsecured (not supported by collateral) or secured (backed by the borrower’s assets).
Secured loans typically provide the borrower with larger loan amounts, longer loan terms, and cheaper interest rates. However, if you stop making payments, the lender can seize your assets used as backup and sell them to cover the remaining amount.
With unsecured loans, you usually get higher interest rates, a shorter repayment period, and a smaller quantity of funding.
Installment Plans
Another common form of consumer finance is an installment loan, which functions somewhat differently than a credit card. If you take out an installment loan, you have to consent to pay back the loan over a defined length of time in fixed monthly installments. In case, you need a little extra time to pay for your purchase or who wish to avoid paying interest, this may be a beneficial option for you.
BNPL and Store Financing
BNPL or buy now pay later financing offers a short-term lending option from a third-party provider. That implies the provider pays you up ahead and assumes the risk of getting the money back.
When it comes to repayment plans, customers usually have the option of choosing between bi-weekly or monthly installments. Once accepted, they can proceed with the purchase and you don’t have to pay any extra fees if you pay back on time.
Based on usage, credit, and/or payback history, each customer can have a unique spending limit; however, some buy-now, pay-later providers set minimum and maximum credit limits.
Now that you’re aware of your options, keep in mind that the consumer finance program you choose should be based on your unique requirements and whether the payment plan works for you.
Advantages of Consumer Financing: Why Should You Choose It?
There are many benefits of consumer financing such as getting the payment upfront, more flexible payment options, more purchasing power, better credit profiles, and access to exclusive deals and promotions.
Now, let’s discuss how each of these benefits actually work in details:
Increased Purchasing Power
Without customer financing, it might have been difficult for you to buy higher-quality goods and services. A consumer financing company provides you the money upfront so that you can immediately purchase what you want.
You can actually spread out your payments on your terms, making it easier to afford more expensive items.
Convenience and Flexibility
With consumer finance, you’re able to choose a solution that best fits your financial status and budget.
If you have other debts to pay off, you can choose a longer repayment period which will result in smaller monthly payments. A shorter payback period with larger monthly installments can allow you to pay off your loan more quickly. You can adjust your repayment plan in this way to suit your requirements. There are also options for deferring your payments, incase an emergency comes up.
Building Credit History
By responsibly using consumer financial services, such as making payments on time, your credit score can be increased.
This is beneficial as it’ll help you get better loans and lower interest rates in the future. Moreover, you’re able to get a larger credit limit if you do require more consumer financing in the future.
Access to Special Offers and Promotions
When big-ticket purchases are made with customer financing, a lot of providers offer exclusive benefits, discounts, and incentives such as frequent flyer miles and cash-back incentives.
If you avail these, you can actually have a lower interest rate or even get some cash back. Depending on what you’re buying, you may have the option to extend your warranty as well.
Emergency Funding
If you have unforeseen costs, such as a damaged appliance or car, consumer financing can give you the money up-front.
This means you don’t have to worry about how to fund an emergency, and it allows you to have financial stability since you don’t have to access your savings either.
Considerations and Responsible Use of Consumer Financing
Although there are many advantages of consumer credit, you should always be careful while using it.
Skipping payments can lead to extreme debt accumulation or even late payment penalties, which can cause financial difficulties. This in turn, will have a bad impact on your credit score.
Here are some pointers to help you navigate the consumer finance industry:
- Before taking on credit, it’s important to determine how much you’ll have to pay each month and for how long by using a calculator, such as one for mortgages or personal loans.
- Avoid the need to borrow more money than absolutely necessary. It could be tempting to take out a bigger loan, particularly if it’s readily available, but it’s important to carefully assess your needs.
- Some customer financing options such as credit cards and loans typically have costs associated with them in addition to interest rates, such as late payments. So, take a look at all the terms and conditions to make sure you can afford to make all of your payments on time.
What’s most important is that you make sure you compare loans for the same loan amount and period along with the different possibilities.
Choosing Consumer Financing For Yourself: Is it Worth It?
If you’re considering choosing consumer financial services, there are many benefits of consumer finance as well as risks that you’ll need to take into account.
What you should keep in mind is that you can choose your own repayment plan on your own terms. Make sure you read through all the details of your loan terms and conditions.
Finally, pick your provider carefully as well, especially for high ticket financing. At RevWay partners, we do our best to finance the courses you want, so contact our team today so see how we can help you.
