Credit cards have always been a great tool for improving purchasing power. They allow you to buy now and pay later, granting you access to things that may otherwise be unattainable. You broke your smartphone and need a new one today, but it costs $600 you won’t have until your next paycheck a week from now. Credit cards solve this problem! The only problem is, they do it on their terms.
Checkout financing, or consumer financing is a different path to the same result for shoppers. It still allows you to get what you need, when you need it. However, it puts the purchasing power and terms back into the hands of the consumer. You may not have $600 for a new phone today, but you can finance it and know exactly what terms you’ll have to pay it back under.
Take a look at the key variables setting credit cards and checkout financing apart. It’s easy to see why consumers are more trusting of consumer loans than credit cards when it comes to making large online purchases:
- Flexible terms: Signing up for a credit card means accepting the standard terms of the company. This usually means agreeing to 18-26% APR, with all sorts of other contingents. Any purchase you make is subject to these terms, too. For consumer checkout financing, shoppers get to choose their terms based on several available options
- Controlled payments: Paying back credit card debt means paying a minimum of accumulated payments. This changes month over month, depending on the outstanding balance. For consumer loans, the payment is always the same. It’s a predictable expense that financially responsible shoppers can look forward to
- Set payoff date: Like controlled payments, consumer checkout financing has a set payoff date. Buyers will know exactly when they’ve paid back their loan, as opposed to credit cards, which accumulate interest month-over-month and can see the balance grow with each new purchase. Every new charge pushes the payoff date back further
- Competitive interest rates: As stated, credit card interest rates are usually fixed at 18-26% APR, depending on the provider. There’s no negotiating! Because consumer loans give buyers a variety of financing choices, a wide range of interest rates are usually accessible—some as low as 8%!
- Credit score impact: Charging $2,000 to a credit card with an $8,000 limit means automatically bumping your credit utilization rate to 25%. This is a major factor in your credit score and will drag it down until the balance is paid off. Because checkout financing is actually a form of personal loan, your credit score will actually increase with on-time payments!
The common theme across all these variables is who’s in control: The consumer! They pick the terms they like, which means controlling their monthly payment amount and payoff date. They’re also making a fiscally responsible decision not tied to credit utilization.
As shoppers become smarter and demand more control over their purchasing power, checkout financing will quickly begin to supplant credit cards. Consumers are already showing that they value more control over their debt than rewards points or high credit limits.