You would think that since consumer financing is numbers-based – a loan amount, length of term, and interest rate equals a monthly payment – it would be considered science. In the words of coach and ESPN College GameDay analyst, Lee Corso, “not so fast!” Things are often described as being either art or science, mainly because these are inherently opposite descriptors. After all, art is subjective and science is objective.
Purists would have you believe that art has nothing to do with science and that science has nothing to do with art. Art is expression based on knowledge and is subjective to the individual creating it or viewing it. There is no correct answer in the world of art. Science, on the other hand is not interpreted, but rather calculated. Scientific method and results are ultimately confirmed to be true, as in a correct answer. Stay with me class!
Financing is derived from the calculation of numbers. A loan has an interest rate and a loan term that generates a payment amount that pays off the loan in that term. There is no subjectivity to that! So, why do I believe consumer financing is not science? Let me explain.
How financing is offered by a business – what type of lending, the programs offered associated with that lending, and in what manner it is offered – is subjective to that business. As an example, Business A may feel that advertising a long term 0% interest program on purchases is what helps drive traffic to its store and believes that if you don’t qualify for this program you probably shouldn’t be financing the purchase. While Business B believes that advertising a broad range of financing options for those with good, average, and even poor credit will help drive more traffic to its store as consumers with less than perfect credit will see that they have an option to pay over time for the purchase. Both businesses are offering financing, but each is uniquely different.
Putting together a financing program that works for a particular business is more art than science. Consumer financing is not a one-size-fits-all proposition. Businesses cater to different demographics, sell different products and services, and generally have different philosophies when it comes to how they conduct business. In the example above, Business A may believe that it’s offensive to offer a high interest loan product to a poor credit consumer. While Business B may believe that offering a high interest loan product to a poor credit consumer can actually help that individual improve his or her FICO score if the loan is paid off as required, thereby enabling a lower interest loan the next time around. There is no right or wrong answer in this situation. Each business is subjectively crafting a financing strategy based on multiple factors that it believes serves its business and customers the best.
You see, financing is art! Class dismissed.
~ David Weyher