What Is The Difference Between Traditional Credit And Point Of Sale Consumer Financing?

What Is The Difference Between Traditional Credit And Point Of Sale Consumer Financing?

Consumer financing has become a pivotal part of the shopping journey. For many, paying for high ticket goods like electronics and furniture upfront is almost impossible, which is why there is an expectation for more flexible financing options in the retail space. The option to use credit cards has always been available for most shoppers, but is it the most financially savvy decision?

The short answer is no. Some of these items could cost you up to $2,000 or more and just because it is not coming from your own pocket, it is still a hefty amount to pay upfront, not to mention that you start eating into your credit balance. Fortunately, there are more affordable financing options out there like ChargeAfter’s Buy Now, Pay Later online financing. 

Let’s dive deeper into the main differences between these two payment options to see why Point Of Sale financing is becoming the leading choice of payment amongst consumers.

The Downfall Of Traditional Credit Cards

Credit cards have been the dominant source of financing in the past, however, it has also become synonymous with mounting debts and severely affected credit ratings. The problem with this type of financing is that consumers are forced to pay the total amount for their goods upfront. This means that the consumer depletes their available credit faster and the monthly charges to pay back the outstanding balance are far more costly due to fluctuating interest rates, services fees, and additional APR costs ranging from a staggering 17%. In many situations, buying on a credit card leaves little room for emergency expenses when it’s needed the most – and why should consumers be forced to choose between buying a new mattress and rainy day funds? 

Getting approved for credit is no easy feat either and many do not meet the criteria. In fact, up to 70% of applications are rejected due to their current income, existing debts, and credit history.

It is because of these reasons that more and more people are steering clear of traditional forms of credit. According to recent research, 68% of Millennials do not own a single credit card and Gen Z is following suit with this trend. This leaves a large gap in the market and instead of capturing the attention of these shoppers, they are either forced to make do without or to save over a few months just to get the goods they want, which is not the ideal outcome for any merchant.

Opening The Door Of Opportunity With Point Of Sale Consumer Financing 

Buy Now, Pay Later solutions hone in on the pain points associated with traditional lines of credit and help put the buying power back into the hands of consumers. While this form of borrowing isn’t a new concept, it has evolved in favor of both the consumer and merchant. Unlike credit cards, shoppers do not have to foot the entire bill on purchase. Instead, they are able to purchase the product with an instant loan that offers affordable payback plans. 

For example, if Charlie is looking to buy a new MacBook Pro, he is in for a total amount of around $2,400. Instead of putting the total cost on his credit card and depleting his balance, Charlie is able to opt-in for ChargeAfter’s online financing solutions. After filling in a quick application form, Charlie’s details are vetted against various lenders, and once approved, he gets access to an instant loan. Charlie gets his goods immediately with no extra charges to his credit card and gets to enjoy a 12-month payback plan with a 12% interest rate and no APR’s. His total monthly costs to pay back the loan would be $196, which does not fluctuate or affect his credit score. 

Charlie has a new MacBook Pro, a positive balance on his credit card for emergency expenses, and a generous amount of time to pay back the loan without ever leaving the checkout. And as the merchant, you have a new sale and a happy customer who is more than likely going to return to your store after receiving a positive and easy financing experience!