4 minute read
In recent years, financing has changed so rapidly it’s no surprise there are misconceptions – what was reality one moment is history the next. Some shoppers still think online financing and traditional financing offer the same experience and have comparable costs, but this isn’t always true.
We’re here to debunk some misconceptions about financing so everyone can know exactly why it’s taking the online payment industry by storm.
1. The application process is too long
When people think online financing, many think the application process is like the traditional offline experience – lots of paperwork and waiting. However, since financing moved online, it’s now a different kind of animal.
The online application process is much faster because it has been modernized to meet online shoppers’ expectations for speed and convenience. Instead of extensive paperwork, shoppers can apply for financing by providing as little as four pieces of information such as their name, email address, DOB, and SSN. Online financing providers have shortened the application process to minimize unnecessary friction.
Additionally, shoppers can sign up directly on a retailer’s site, allowing them to apply and buy in the same location. With a real-time application process, shoppers can be approved in seconds and complete their purchase with one click.
2. Financing can be expensive
Many people finance purchases with their credit cards to let them pay over a period of time. But this can be expensive because if a shopper doesn’t pay off the entire purchase by the end of the billing cycle they pay interest. And since credit card interest rates can be as high as 23%, the cost can quickly add up.
Certain online financing plans also charge high interest rates so buyers need to be aware. In some cases, it can be even more expensive than credit cards with APRs reaching as high as 30%. But this isn’t always the case.
Within online financing there are some businesses who focus on affordability above all else. In place of variable interest rates, some charge a small fixed monthly fee with 0% APR. Additionally, they make financing more affordable by allowing shoppers to choose repayment schedules that fit their budgets.
The misconception that financing can be expensive does hold true, but not all the time.
3. Shoppers don’t need financing – they already have a credit card
Although many people in the US own and use multiple credit cards to shop, there are still those who don’t even own one. In recent years, the percentage of Americans who don’t own a credit card has jumped to almost one-third. That means there are millions of Americans who can’t shop online because they don’t have a credit card.
Even people who own credit cards can benefit immensely from an online financing option because it’s an alternative source of affordable credit. Imagine, one day you come home to find your fridge broken but your credit card is maxed. Instead of waiting until you free up available credit, you could use online financing to split the cost into smaller, more manageable payments.
Financing and credit cards are amazing tools people use to shop online when they don’t have available funds, but each shopper has a different threshold for when they would rather finance a purchase than pay with a credit card. In fact, 15% of shoppers would use financing instead of a credit card for purchases as low as $200 and 47% would make the switch at $1000. Alternative financing options give shoppers another way to fit products more easily into their budget without using a credit card.
4. It’s limited to enterprise-level businesses
For retailers, adding a financing option is thought to be difficult because they need to build a relationship with a third-party lender, and integrate their application and credit decision processes. Because these tasks require a lot of time and money, many assume financing is more suited for enterprise-level businesses.
However, today businesses of all sizes have access to financing because it’s not as arduous or as expensive to get. Rather than retailers building relationships and integrating their processes in-house, certain financing providers do it for them.
Retailers can be transacting in no time because financing providers are already partnered with banks and numerous ecommerce platforms. And even if you operate on a proprietary platform you can find financing providers that will do integration work for you, making online financing accessible to all sizes of businesses.
The truth about online financing
The entire financing process has changed, looking almost nothing like it’s traditional counterpart. What were once friction points in the traditional process have now been addressed, creating an effective online alternative payment option.
It’s time to set misconceptions straight. Online financing is easy to get, affordable, desirable, and accessible. And as time goes on financing will continue to improve and change the online payment industry.
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