Author: ChargeAfter

Credit cards have long been a go-to tool for increasing purchasing power. They allow consumers to buy now and pay later, making it possible to afford items that might otherwise be out of reach. For instance, a credit card can bridge the gap if you break your smartphone and need a new one immediately but don’t have the $600 to cover the cost until your next paycheck. However, using a credit card means playing by the issuer’s rules, sometimes leading to high-interest debt and unpredictable payments.

On the other hand, checkout financing—also known as consumer financing—offers a different path to the same goal: giving you access to the products you need when you need them. The key difference? You’re in control of the terms. Whether you’re buying a new phone, furniture, or any other large purchase, checkout financing allows you to choose how you’ll pay it back, often with flexible terms that can be tailored to your budget.

As consumers grow more financially savvy, they increasingly gravitate toward checkout financing, especially for larger purchases. Here’s a closer look at the variables that set credit cards apart from checkout financing and why more shoppers favor the latter.

What Is Checkout Financing?

Checkout financing, also known as Buy Now, Pay Later (BNPL) or point-of-sale lending, allows consumers to divide large purchases into manageable payments over time. Unlike credit cards, which accumulate interest on revolving balances, checkout financing provides a structured repayment plan with set terms, often including zero or low interest rates for the duration of the payment schedule.

This payment option is becoming increasingly popular across online and in-store transactions, with many retailers adopting white-label POS systems to offer customers more flexible payment options.

What Is Buying Outright with a Credit Card?

A credit card lets you purchase items outright and pay off the balance over time. It offers the flexibility to pay for goods and services, earn rewards, and build credit. However, credit card interest rates can be high, ranging between 18% and 26%, making it costly if you don’t pay the balance in full each month. Credit cards also come with minimum payment requirements that fluctuate based on the balance, meaning your monthly payments can vary.

While a credit card provides a revolving line of credit, it can also lead to long-term debt if not managed carefully. Interest accrues on unpaid balances, making it more expensive over time than structured financing options like BNPL.

Flexible Terms: Checkout Financing vs. A Credit Card

One of the most significant differences between checkout financing and a credit card is the flexibility of terms. With checkout financing, you’re often presented with multiple repayment plans, allowing you to select the option that best suits your budget. For example, you can choose a six-month, 12-month, or 24-month plan with fixed monthly payments, and you know exactly what your interest rate will be, if any.

On the other hand, a credit card comes with fixed terms dictated by the card issuer. This includes a set APR that applies to all purchases without negotiation. If you carry a balance, you’ll be subject to this interest, which compounds as long as you owe money.

Controlled Payments: Why Checkout Financing Is More Predictable

One of the main attractions of checkout financing is the ability to control payments. With this type of financing, you have a predictable monthly fee that remains consistent throughout the repayment period. This is beneficial for budgeting, as you know how much to allocate monthly.

In contrast, with a credit card, your minimum payment can change monthly based on your spending and interest accrued. This lack of consistency can make it harder to plan your finances. Credit card debt can grow if you make new purchases without paying off your balance, adding to the unpredictability.

Set Payoff Date

Another critical advantage of checkout financing is the set payoff date. When you use checkout financing, you agree to a specific payment term: six months, 12 months, or longer. This means you know exactly when your loan will be fully paid off, giving you a clear timeline for eliminating the debt.

A credit card doesn’t offer this type of certainty. Because credit cards revolve, every new purchase can extend your payoff date. As a result, you can carry a balance indefinitely if you only make minimum payments, which can lead to accumulating interest over time.

Competitive Interest Rates: Checkout Financing vs. A Credit Card

Interest rates are another crucial factor when deciding between checkout financing and a credit card. With checkout financing, you often have access to lower interest rates, and in many cases, you may qualify for 0% APR if you pay off the loan within a specified period. This can make checkout financing much cheaper than a credit card, especially for large purchases.

In contrast, interest rates tend to be higher, ranging from 18% to 26%, depending on the card and your credit score. Once you carry a balance on your credit card, interest starts to accrue, making it more expensive to repay.

Impact on Credit Score

Checkout financing and credit cards operate differently when it comes to how these options affect your credit score. Charging a large amount to your credit card can increase your credit utilization ratio, which could negatively impact your credit score if the balance remains high. This ratio compares your credit card balance to your credit limit, and a higher ratio can drag down your score until the balance is paid off.

Checkout financing works more like a personal loan, meaning that if you make on-time payments, it can improve your credit score. Additionally, because checkout financing doesn’t involve a revolving line of credit, there’s no impact on your credit utilization ratio.

Why More Shoppers Are Choosing Checkout Financing

The underlying theme across all these differences is control. Checkout financing gives consumers more say in managing their payments, from choosing the repayment schedule to knowing exactly when the loan will be paid off. This level of transparency and predictability is a big reason why more shoppers opt for checkout financing, especially for larger purchases.

As embedded finance platforms and BNPL white-label solutions become more widespread, consumers increasingly favor financing options that allow them to take control of their debt without the uncertainty associated with credit cards.

Conclusion: Which Option Is Right for You?

Deciding between checkout financing and using a credit card depends mainly on your financial situation and purchasing needs. If you’re looking for predictable payments, lower interest rates, and a set payoff date, checkout financing may be the better option, especially for large purchases. On the other hand, a credit card could be the right choice if you’re seeking more flexibility with revolving credit and want to take advantage of rewards programs.

Ultimately, both checkout financing and credit cards have their place. You can choose the best option for your financial goals by understanding the key differences.

Millennials and Gen Z shoppers are rapidly taking over as the primary spenders in the economy, and payments play a key role in their purchasing decisions. Unfortunately, these groups are much more reluctant to make impulsive purchases or stretch themselves thin financially. Additionally, credit card applications are down—especially for those who have been previously denied.

All these variables add up to a major consumer group that’s wary of making large online purchases and, in some cases, unable to even if they wanted to. With high-priced items subsequently moving into the eCommerce space, there’s trouble on the horizon for shoppers unable or unwilling to make big purchases outright.

Consumer point-of-sale financing is the solution. As the new frontier of online payments, consumer financing, or consumer credit, is the happy medium between price-minded Millennials and big-ticket online purchases.

Aversion to credit cards

Too many Millennials have seen what credit card debt can do to those trapped under it. Their parents (Baby Boomers) have accumulated more credit card debt than any other generation. Most Millennials and Gen Z shoppers have seen and heard the cautionary tale of credit cards.

Younger consumers who do have credit cards are still using them for big purchases, but they are paying them off faster and not racking up as much debt. As a result of self-imposed spending limits, bigger purchases are few and far between for these shoppers. But the demand is still there. That’s why pay-as-you-go plans, installment plans, and checkout financing are all on the rise.

These payment options offer the same convenience as credit cards—buy now and pay later—without the threat of high APR and considerable upfront spending costs. Millennials are much more open to spending $2,000 on a 12-month installment plan than charging it upfront and dealing with overhanging credit card debt.

Reasonable debt

Consumer point-of-sale financing is appealing for more reasons than avoiding a hefty upfront charge. It doesn’t have the stigma of credit card debt or the compounding interest that comes with it. Borrowers know precisely how much they’ll need to pay on a monthly checkout financing loan—it won’t rise or fall. Moreover, it’s a debt they can’t add to by swiping their card absent-mindedly.

In short, point-of-sale or checkout financing for consumer loans has become a staple of “reasonable debt.” Shoppers recognize it as debt and understand the nature of it, but they’re more willing to take it on because they have control over it. They get to pick their terms and rates. They’re aware of their payments ahead of time. And, when the debt is closed, it’s done outright.

It’s the best of all worlds for consumers and retailers alike. Consumers get what they want upfront and agree to debt on their terms; retailers increase sales and accommodate a broader range of shoppers.

More brilliant payments for responsible consumers

Modern consumers are savvy. They won’t stretch themselves thin for something they don’t need. They are smart enough to assume debt they can handle for something they deem worthy. Demand will always be there; flexible financing options need to follow.

Millennials and Gen Z shoppers may clutch their wallets tighter, but they’ll loosen the purse strings if retailers meet them halfway. Point of sale, checkout financing, and credit are the more brilliant payment options for today’s intelligent, responsible consumers.

The world of consumer point-of-sale financing has a distinct split between single lenders and multi-lenders. To the consumer, this distinction is almost impossible to spot. For retailers, it makes a big difference. Single vs. multi-lender platforms can have a huge impact on who gets approved for financing or not, what terms are available, and what sales look like.

Single lenders

Single lender platforms typically focus on “prime” credit applicants. These are consumers with excellent to good credit and the most favorable variables working for them, such as a good credit history, high income, and low or no existing debts.

These lenders — Affirm, Bread, and others—use specific credit underwriting terms to target prime consumers. Single lenders also act as banks and usually have one source of fund distribution. This means their risk is higher due to their focus on prime borrowers. Anyone not fitting the “prime” mold is usually denied, which means turning away roughly 70%~ of applicants to focus on the top 30%~.

There’s nothing wrong with this strategy for lenders—they’re targeting people most likely to pay back their loans! For (e-commerce) merchants, however, this impacts sales. Customers outside the prime category may not qualify despite their apparent ability to repay their loans. Likewise, denied shoppers may abandon their carts altogether to shop elsewhere. Abandoned carts skyrocket, conversion rates fall, and missed opportunities abound.

Multi-lenders

Multi-lenders (like ChargeAfter) use a network of financing options funneled through a single-user checkout experience. Customer data isn’t processed against uniform terms targeted at prime applicants. Instead, it’s put through a “waterfall” of diverse banks, with various financing options for the consumer at approval.

The waterfall method is a straightforward and efficient process. A consumer point-of-sale financing application is first checked against the prime lenders for approval. If the application is declined, it then moves down to near-prime options. From there, sub-prime options are explored, and so on, all the way down to lease-to-own financing options. All of this is done in one single application, with results back in under 2 seconds!

Because multiple bank lenders are checked in the waterfall, different rates and terms are available to shoppers once they are approved, allowing them to pick the best-personalized offer for them at checkout.

ChargeAfter provides an up to 85% approval rate for applicants by enabling merchants to offer more financing options and allowing shoppers to receive and select the right choice for them!

Single Lender vs. Multi-Lender

When comparing single-lender and multi-lender platforms, the difference lies in the range of financing options and approval rates. Single lenders focus on prime consumers, offering competitive rates but excluding many applicants who fall outside their strict credit criteria. This exclusionary approach can lead to higher cart abandonment rates and fewer conversions for merchants. Multi-lender platforms, on the other hand, use a more inclusive waterfall method, presenting diverse financing options from multiple banks. This strategy increases approval rates and ensures more consumers can secure financing, ultimately boosting sales and merchant satisfaction

The effect on eCommerce

As mentioned, denying a shopper access to financing can have disastrous results for abandoned carts, conversions, and even customer loyalty. However, giving borrowers more flexible repayment options cannot only encourage checkout confidence but also lead to higher average order values (AOV) at checkout. This optimistic outlook can inspire retailers to consider the potential benefits of multi-lender platforms.

More people are shopping online than ever before. Big-ticket items are more available, too. As a result, it’s in the best interest of online retailers to bring their customers diverse financing options to meet all credit types. Choosing a multi-lender platform means casting a broader net for interested shoppers and bringing in more sales. You’ll also turn away fewer potential borrowers who can improve their financing.

In an age where it’s easier to buy an armchair online than going to a physical furniture store, eCommerce stores need the inclusivity that multi-lenders offer. Not everyone has pristine credit, but that shouldn’t disqualify 70+% of shoppers seeking consumer loans. Multi-lender platforms provide a more considerate approach, ensuring that a wider range of shoppers can access the financing they need.

Conclusion: Optimizing Sales with Single Lender vs. Multi-Lender

Choosing between single-lender and multi-lender platforms can significantly impact a retailer’s success. While single lenders may work for prime customers, limiting approval rates and excluding many potential buyers can hinder growth and increase cart abandonment. With their inclusive waterfall approach, multi-lender platforms open doors for a broader range of consumers, enhancing approval rates, improving customer satisfaction, and boosting overall sales. By offering diverse financing options, retailers can meet the needs of today’s varied credit profiles and maximize opportunities in an increasingly competitive market. Adopting a multi-lender strategy is a forward-thinking move promoting inclusivity and growth in the digital retail space.

When making large purchases, your chosen payment method can significantly affect your finances. While credit cards and PayPal are familiar payment options, consumer financing offers a different approach, providing flexibility and long-term budgeting benefits. Let’s explore how consumer financing differs from traditional credit card and PayPal checkout options, often available through point-of-sale (POS) financing or buy now, pay later (BNPL) models.

Credit cards: flexibility but at a cost

Credit cards are one of the most common payment methods for small and large purchases. They offer a revolving line of credit, allowing users to make purchases and pay them off over time. While convenient, credit cards often come with significant drawbacks for larger purchases:

• High interest rates: If the cardholder doesn’t pay off the balance each month, they can face high interest charges, often ranging from 15% to 25% or more. This can quickly increase the cost of the purchase.
• Credit utilization: Large purchases can push your credit utilization—the percentage of your total credit limit used—into high levels, which negatively affects your credit score. Credit utilization above 30% is generally considered risky by credit bureaus.
• Long-Term debt: Revolving credit means that if you only make minimum payments, you can carry the debt over an extended period. This leads to growing interest charges and more long-term financial strain.

For large purchases like electronics, furniture, or appliances, charging a credit card may lead to higher costs over time due to these factors.

PayPal checkout: convenience with limits

PayPal is another popular option, particularly for online purchases. It allows users to link bank accounts, credit cards, or a PayPal balance to their accounts for quick payments. While it’s efficient and secure, PayPal has limitations when it comes to more significant transactions:

• Instant full payment: The total amount is charged immediately when using PayPal to pay for a purchase. This means that, unlike financing options, PayPal does not allow for installment payments unless the buyer uses PayPal Credit, which works similarly to a credit card.
• PayPal credit: PayPal Credit is essentially a digital credit card, offering the ability to pay off purchases over time. However, it still comes with interest rates as high as traditional credit cards, and its approval process involves a credit check.

While PayPal excels in convenience and security, it may need to provide more financial flexibility that consumer financing options offer for larger purchases.

Consumer financing: flexibility and budgeting power

Consumer financing through POS financing platforms or BNPL services offers a different way to manage large purchases. Instead of paying the total amount upfront, customers can spread payments over time with fixed terms, often without interest for short periods. Here’s how consumer financing differs:

Installment Payments: Consumer financing breaks a large purchase into manageable payments. This allows buyers to budget their purchases more effectively without draining their resources simultaneously.

• Lower credit impact: Instead of charging to a revolving credit line like a credit card, consumer financing typically has a minimal impact on credit scores, especially when payments are made on time. Since it’s often structured as a short-term loan, it doesn’t affect credit utilization ratios.
• Interest-Free periods: Many BNPL white-label solutions and POS lending options offer interest-free payment plans for 6 to 12 months, as long as the balance is paid off within that timeframe. This is especially attractive for consumers looking to avoid credit card interest rates.
• Fast approval: Unlike credit cards, consumer financing often involves only a soft credit check, meaning customers are approved quickly without significantly impacting their credit score.

Consumer financing provides greater control over how purchases are paid off, which is especially helpful for consumers making high-ticket purchases. Solutions like embedded lending platforms make it easy for retailers to offer these options directly at the point of sale, whether online or in-store.

Key differences between consumer finance, credit cards, and PayPal

While each payment method has its merits, the differences between them can significantly impact your financial situation. Here’s a breakdown of how consumer financing differs from credit cards and PayPal:

Payment flexibility:

• Consumer finance: Offers installment plans that are easy to manage over time, often with no interest for promotional periods.
• Credit cards: Provide revolving credit but can lead to higher interest charges if balances aren’t paid off in full.
• PayPal: Typically charges the total amount at once unless using PayPal Credit, which still functions similarly to a credit card.

Interest rates:

• Consumer finance: Generally lower or even interest-free, mainly if payments are made within promotional periods.
• Credit cards: Typically come with high APRs if the balance is not paid in full monthly.
• PayPal Credit: Interest rates are similar to credit cards, depending on the terms offered at checkout.

Impact on credit:

• Consumer finance: This can positively impact if payments are made on time without increasing credit utilization.
• Credit cards: Large purchases increase your credit utilization, negatively impacting your credit score, and missed payments can result in long-term damage.
• PayPal: PayPal itself doesn’t impact credit, but PayPal Credit can affect credit scores similarly to traditional credit cards.

Approval process:

• Consumer finance: Quick approval, often with soft credit checks, and accessible to many customers.
• Credit cards: Require a hard credit inquiry, which can impact credit scores, and approval depends on the user’s creditworthiness.
• PayPal: Instant transactions for regular payments, but PayPal Credit requires a credit check.

Conclusion

When deciding between consumer financing, credit cards, or PayPal, you must consider your financial situation and the size of your purchase. For more oversized items, consumer finance options like POS lending and BNPL can provide the flexibility and budgeting power needed to avoid high interest rates and credit card debt. On the other hand, credit cards and PayPal offer convenience but may result in more long-term costs for large purchases.

In short, consumer financing is the better choice for shoppers looking to break down significant expenses into manageable payments, protecting their financial health and credit score.

More than just gadgets and groceries, people make even bigger purchases online, sometimes involving price points in the thousands of dollars. The problem with high-priced goods sold online is that only some purchases can be made outright by everyone. Buying a $5,000 piece of furniture is much different than checking out with $50 worth of houseware! Many consumers can either not make this sizable purchase outright or are rightfully reluctant because they are placing a high-dollar purchase on their credit card, which may not have the available line. This is where consumer financing steps in, providing much-needed relief.

Digital financing, in simplest terms

Point-of-sale financing is a quick solution to mid to high-dollar-value checkouts. Customers get their desired items without immediately racking a huge credit card bill. Instead, they’re instantly approved for financing applied directly to their cart. Rather than spending big bucks outright, they can repay their purchase in affordable installments over time.

The concept isn’t novel—financing has always existed for big-ticket items like appliances, furniture, jewelry, and more. What is new is instant financing, which is available through online checkout. As retailers of high-priced goods take their commerce online, checkout financing is the easiest way to bring financing options to customers.

Simplicity is key

One of the chief reasons consumer financing is making headway in e-commerce is its simplicity. In an age where more steps equal barriers to conversion, financing is integrated with other familiar checkout options like Apple Pay, Visa Checkout, and Google Pay. It’s not seen as a barrier—simply another payment option. About 25% of mid- to high-ticket item purchases are made through consumer financing at check out.

Financing at checkout also benefits from a streamlined credit application. Running a basic credit check is easier than ever, which means customers only need to provide their name, date of birth, phone number, email address, social security number, and monthly income figure. This takes about as much time as filling in credit card data for a regular purchase, making the process straightforward and not time-consuming. Credit approvals (or denials) are generated in seconds, which leads to faster checkout.

Flexible options with consumer financing

Consumer financing comes in various forms, increasing the likelihood of approval for most shoppers. Those with excellent credit may opt for higher payments at a lower interest rate for a shorter payback period. On the other hand, those with less-than-perfect credit may prefer more lenient terms. This flexibility is made possible by the diversity of lenders available, from traditional institutional lenders to ‘lease to own’ offers. This variety ensures that more people can borrow, leading to approval rates as high as 85% through a diverse lender network.

This variety and flexibility come from the diversity of lenders available. From traditional institutional lenders down to the “lease to own” offers, different risk tolerances and capital loans enable more people to borrow. Instead of 20-25% approval rates through single-point lenders like credit card conglomerates and other consumer financing providers found on many of the leading eCommerce sites today, approval rates as high as 85% are possible through a diverse lender network! The result is the widespread enabling of high-dollar eCommerce purchases.

Consumer financing is fueling eCommerce growth.

It’s abundantly clear that eCommerce is only growing. And, with high-value purchases starting to trend upward, it’s also clear that more straightforward financing options are in demand. Giving consumers an instant, secure way to finance their items at checkout will continue to fuel demand for these items and enable online purchases.

ChargeAfter is making it easier for customers to get the correct financing terms at checkout without the barriers of long-winded applications. Using a multi-lender network, we help online retailers enable quicker purchases of higher-value goods without the burden of a huge upfront purchase. We’re the intelligent solution to eCommerce growth for companies relying on convenient consumer financing!