All You Need to Know About Consumer Financing

A consumer financing is a consumer loan where the borrower only pays back in installments, for example monthly. These loans are usually taken out by people who just can't afford to make their purchase currently but would like to pay it over time. The merchant or business will provide the customer with a regular interest rate and an installment amount per day or per week.

The purpose of this loan is for the borrower to make their purchase more manageable and avoid credit card debt or overdrafts. The customer will pay back the business or merchant directly and never put it on their credit card.

The benefits of consumer financing include:

• The ability to repay the debt over time, while forming a more solid repayment plan.

• Better control over your purchases and budgeting.

• A chance to earn some extra money with the added flexibility of regular payments. Which helps build a rapport with your customers, making you more desirable.

Some of the negative aspects include:

• The money is not always paid back to the business.

• The business has to take the loss if they cannot collect on their loan.

• The business may lose a customer if they are not able to collect on their loan.

For example, a customer wants to purchase a $100 item from a local shopkeeper. He only has $75 and will need the other $25 financed to his account so he can pay for the item over time. The shopkeeper agrees to this and will charge an interest rate of 5% over a period of 3 months, with the 2nd and 3rd payments being due after 21 days. The business has the right to demand payment at any time and will add on late fees or penalties if the loan is not paid on time.

The customer now has till the end of the month to get his money together or make his payment.

Consumer financing is used as a way for small merchants to expand their sales.