When it comes to making a big-ticket purchase, the cost is the first consideration and frankly, a barrier to a purchasing decision for many customers. If that barrier is removed, customers will proceed with the purchase. One of the major ways to increase conversions for these “high-consideration purchases” online is to offer customer financing.
Customer financing enables customers to make consistent, affordable payments towards the cost of a big-ticket item, without shouldering the full price upfront.
By incorporating consumer financing within your business, you wipe out the pain of sticker shock and redirect the conversation away from the total purchase amount. Instead, you are offering them a solution, an alternative of paying low, monthly payments to enable them to buy whatever they want.
What Is Customer Financing?
The way customer financing works is that it breaks down the total cost of the high-ticket item or service, allowing customers to make smaller loan payments based on a predetermined schedule. Therefore, instead of paying for the full retail price at the moment of purchase, customers can make consistent payments on a monthly, bi-weekly, or weekly schedule.
Interest charges are included in most of the loan payments. Interest rates do depend on the specific terms of the loan. In certain cases, as an incentive for potential customers, merchants will offer “zero-interest financing”.
Why Offer Consumer Financing To Your Customers?
Your business can benefit greatly by offering consumer financing to your customers. It can boost your sales and even increase your average sales transaction size. Here are more benefits:
- Boost Your Sales And Transaction Size
The power of financing lies in the fact that it elevates a customer’s purchasing capacity, making high-ticket purchases more attainable. Not only does it convert customers more easily, but it also creates the perfect environment for upselling.
You can demonstrate this by showing how just a small increase in their monthly plan can allow them to afford upgrades or even additional products. There is no need to offer additional incentives or discounts.
- Get Competitive Advantage
By offering consumer financing, your business can go “head-to-head” with the big-box stores. Merchants can kick it up a notch by including customer incentives and promotional programs such as “interest rate buy-downs”, no-interest loans, and payment deferrals. Not only will these incentives close sales, but it will also spur repeat business.
- Get Paid Immediately
Some merchants may be reluctant to offer customer financing since they will not receive the full price for the product at the time of the sale, negatively impacting their cash flow.
However, by partnering up with a third-party loan provider, they don’t need to take on the risk of offering their own loan program. When the third-party loan provider approves the customer for the loan, the merchant gets paid the full price and is deposited directly into their bank account. That way, the cash flow issue is resolved and there is no need to worry if the customer defaults on the loan.
- Draw In New Customers
As customers comparison shop for big-ticket purchases, they are more likely to go with a merchant who offers customer financing over one who does not. This may even turn into repeat business since consumer credit programs encourage customers to come back for future purchases.
It was also discovered in a recent study that 93% of buyers that had used consumer financing the first time would take advantage of it again.
Is Customer Financing Right For You?
As previously discussed, customer financing offers a wealth of benefits for both you and your customers. Your customers get the product that they need and you get more conversions and higher sales. The most important step to take next is to find the best financing program that would work both for your business and your particular customer base.