At the end of the day, the most critical aspect of any business is its sales – the higher the sales, the bigger the profit and the larger the growth. Companies often try to grasp customer attention and boost purchase rates by offering consumer financing – a facility that allows customers to buy now and pay later.
While it may initially seem like a good idea for businesses, Attorney Tommie Harsley empathizes that it’s essential to be well aware of the different types of consumer financing before offering it as an option to customers.
What is consumer financing?
In simple terms, consumer financing is a loan an individual takes out to purchase goods or services from a business. It’s generally seen as a way for people to spread the cost of an expensive purchase over a period of time, making it more affordable in the short term.
Types of consumer financing
There are two main types of consumer financing – unsecured and secured.
Unsecured consumer financing is where the loan isn’t backed by any collateral, meaning that if you default on the repayments, the lender can’t seize any of your assets. The advantage of this type of loan is that it’s usually quicker and easier to approve, but the downside is that the interest rates are often higher.
Secured consumer financing is where the loan is backed by collateral, typically in the form of a home or car. This means that if you default on the repayments, the lender can seize your assets to recoup their losses. The advantage of this type of loan is that it often comes with lower interest rates, but the downside is that it can take longer to approve.
Pros and cons of consumer financing
Attorney Tommie Harsley emphasizes that there are both pros and cons to offering consumer financing to customers. Some of the advantages include:
– Increases sales: Consumer financing can be a great way to increase sales, as it allows customers to purchase items they might not otherwise be able to afford. This can be particularly beneficial for businesses selling high-priced items such as cars or homes.
– Builds customer loyalty: Offering consumer financing can help build customer loyalty, as it shows that you’re willing to work with them to make a purchase possible. This can make customers more likely to return to your business in the future.
– attracts new customers: Consumer financing can also be a great way to attract new customers, as it’s often seen as an attractive option. This is particularly true for businesses that are selling products or services that are considered to be luxuries.
However, there are also some disadvantages to offering consumer financing, which includes:
– Increases bad debt: One of the biggest risks of offering consumer financing is that it can increase bad debt, as there’s always the possibility that customers will default on their repayments. This can be a problem for businesses with a high proportion of customers with poor credit scores.
– Requires careful management: Another downside of consumer financing is that it requires careful management to succeed. This means that businesses need to have systems and processes in place to track repayments and chase up late payments.
– Can be costly: Finally, it’s important to remember that offering consumer financing can be costly, as you’ll typically have to pay interest on the loans you provide. This is something that needs to be considered carefully before deciding whether or not it’s the right option for your business.
Attorney Tommie Harsley believes that while consumer financing can significantly increase sales and build customer loyalty, it’s essential to understand the pros and cons before offering it as an option to customers.