Point of sale financing is when the merchant, at the point of purchase, offers its customers a financial solution to help them in the purchase of the product or service. POS financing refers to open-loop credit cards, closed-loop store cards and installment loans and is a type of consumer finance. POS loans have been here for a long time, such as when selling high furniture items and car loans. However, due to technological advances that have made installment loan options available immediately online and on mobile phones, POS lending has expanded in recent times, providing clear repayment terms before the loan is taken out.
How does financing for point of sale work?
Suppliers charge promotional schemes with loose monetary policy to encourage people to take out point-of-sale financing. Many lenders are also known for offering 0 percent interest rate systems. The reality is, however, that lenders earn a profit on these loans. The lenders charge merchants a fixed fee for each loan they originate instead of charging the interests of the customers. This fixed fee, for example, is 7 percent of the purchase. Therefore, if the purchase value is $800 the lenders will charge $56 as fees from the merchants the moment a loan is created by them.
Retailer Benefits
Growing Consumer Base: Only individuals who have a certain credit score are given traditional credit cards. Point-of-sale funding can, however, be given to almost anyone! The number of possible customers in the market is therefore increasing. For example, to purchase high-end phones and gadgets, many students now use point of sale funding. They couldn't afford a lump sum payment to be made. Many of them may, however, pay monthly installments.
Consumer Benefits
Clear: First, unlike a credit card, the funding for point-of-sale is transparent. This means that, along with debt and taxation, customers know the exact amount they are going to pay back. No secret fees or surprises are present.
Reduced interest rates: Consumers often pay lower interest rates when selecting sales financing points, as described above. To boost profits, the merchant is responsible for some of the lending expenses.