What do many consumers’ financial situations look like? Simply put, paycheck to paycheck. This standard of stressful finances often go hand in hand with having fair or even poor credit. A 2019 Experian Credit Review reflected 18% of consumers having just “fair” credit and 16% of consumers having “very poor” credit — a FICO score between 300-579.
With that said, it is often the case that these same individuals fall into the 39% of Americans who cannot afford a $400 emergency bill out of pocket.
Having the ability to finance larger expenses is crucial to consumers on two fronts. 1.) Financing makes purchases accessible and payments manageable, and, 2.) Paying off debt on time is the only way to truly improve a poor credit score. A chance to pay off a loan is a chance to start fresh and establish a positive credit history.
This is where the importance of consumer financing comes into play for merchants. Many high dollar goods and services are crucial to consumers, but not financially attainable with a cash payment. When merchants offer financing, they instantly make themselves available to an entirely new bracket of customers. And, when they offer financing that covers a wide range of credits, they make financing inclusive to a wide range of people.
Not only can providing a payment option that fits into a monthly budget attract new customers, but it provides desirable options for existing customers. COVID19 added a degree of caution to many consumers’ spending habits — making sure there is money in the bank for a rainy day. For individuals with good finances, the ability to pay over time is just as desirable as for individuals experiencing financial stress. Offering financing is not something which is meant to be discriminatory. Rather, it’s an attractive tool for any and all consumers.
With the understanding that your high ticket goods or services are needed by Americans with a wide range of credit, it’s crucial to provide financing solutions that fit various credit profiles. Many financial institutions only provide options for individuals with prime, or very good credit. This limits potential revenue which could come from subprime customers, those that often cannot afford an out-of-pocket option.
When selecting a financing partner or partners, a sales-minded merchant should focus on inclusion. Providing a pay-over-time opportunity for the near 50% of Americans without perfect credit can make all the difference.