It’s a lot easier to swipe a credit card for $20 than it is for a $2,000 purchase. The same goes for online checkout. Unfortunately, it’s unavoidable when it comes to something like a computer or an armchair, which retail for hundreds if not thousands of dollars baseline.
The advent of instant consumer financing, or “point of sale financing” provides an alternative. Instead of paying the full price upfront—charging hundreds, or thousands to a credit card—it enables shoppers to get the item they want now, with an affordable payback plan in place. It’s a solution with broad-ranging benefits for shoppers, not least of which is avoiding a major charge upfront.
Joe wants to buy a new MacBook Pro. He customizes his computer on Apple’s website and heads over to the checkout, where he’s met with a grand total of $2,100. He decides to charge his credit card, which has a limit of $8,000 and already has a balance of $2,400 on it. After checking out, Joe has a credit card balance of $4,500 and his credit utilization is at 56%!
There are numerous problems with this scenario. First, if Joe has any emergency expenses, he might not have the means to cover them. Second, his credit score is going to suffer mightily from high credit utilization. Finally, it’s unlikely Joe is going to pay off his entire credit card balance, meaning major interest payments are coming his way soon.
Suzie wants to buy the same MacBook for $2,100. She’s in the same boat as Joe: A credit card with an $8,000 limit, with $2,400 already on it. Instead of charging her purchase, however, Suzie uses checkout financing at the point of sale. She checks out with no money added to her credit card. Instead, she has 12 months to pay back the purchase, with a 12% interest rate. All told, Suzie will pay $196 monthly, equating to $2,352. Additionally, some merchants may even offer a 0% APR if paid back in full within 6-12 months which will directly contribute to more deep savings for Suzie.
At a glance, it’s easy to decry Suzie’s choice since she’ll pay a small premium in the end. But, looking closer, it’s actually the more fiscally responsible decision to make! Suzie will keep her credit utilization at 30%, which won’t hurt her credit score any more than it already has. She’ll also avoid the 25% APR or more of a credit card! Finally, Suzie will actually build her credit by making on-time payments on a small personal loan.
Examining these two scenarios, it’s clear who comes out a winner. Both people are getting their computer… but, while Suzie may be paying an extra $252 for hers upfront, she’s avoiding the many pitfalls of increased credit card debt, inflated interest rates, and unforeseen emergency expenses. Joe is at the mercy of all these variables, which will end up costing him far more.
For individuals who want control over their finances and the ability to make good fiscal decisions, consumer credit and checkout financing is a clear choice. It offers flexibility and protection that a credit card simply can’t, paving the way for peace of mind with bigger purchases.