The Top Four Myths About Retail Point of Sale Financing

by Michael Garrity 

If you really want to know how consumer financing will make an impact on your business this year, look no further than the biggest retailers in the market today. 

Long used by big box stores, retail point of sale financing is a proven technique for stimulating sales. It has a simple function: break down a hefty price tag into more budget-friendly monthly payments, which gets your customers buying more, and more often. Yet, many smaller retailers are not using this effective sales tool due to a number of myths that have long clouded the financing space. 

In this article, I outline the top four myths surrounding point of sale financing in retail to help you to better decide if these programs are right for your organization and customers: 

1. My customers don’t need financing

Salespeople might assume that the only customers who are interested in point of sale financing are those who can’t afford to pay otherwise. In addition, some store personnel are even hesitant to initiate the discussion for fear of insulting the customer. 

The truth is consumers across all financial backgrounds use low-interest financing options every single day. In particular, credit-savvy, high net worth customers often take advantage of low or no-interest credit options whenever possible at point of sale. But this option isn’t exclusive to high net worth customers either. Financing with the right program can be a financially smart strategy for the majority of customers. 

The bottom line: there’s no stigma attached to financing programs. Sales personnel should be trained to lead with the store’s current financing programs along with the lowest monthly payments - with every customer - rather than waiting for someone to ask about financing.

2. Customers don’t like paying interest 

What big box stores have known for years is that customers are much more concerned about the size of the monthly or bi-weekly payment and the length of time it’ll take to repay it, than they are the interest rate. 

A financing program that spread payments out over five or more years with a single digit interest rate is going to offer an attractive monthly payment that can meet just about any customer’s budget. In addition, if payments are paid each month on a financing program, the loan will be fully paid off at the end of the term as opposed to the more open-ended nature of a credit card.

Keep in mind that every customer has a monthly budget to work with and pricing in terms of a payment is a much easier way for consumers to understand how their  affect day-to-day spending will be affected.  

Store associates and showroom price tags should emphasize the lowest monthly payment so customers can see just how affordable a big-ticket item can be. 

3. Financing is expensive for retailers

If you are a retailer, you are already accustomed to paying 1.5 - 3.5% in merchant fees for each credit card transaction. While the specifics depend on the financing provider and program, many compelling financing programs today are completely free to use and have reasonable fees for using marketing programs, like payment deferrals.

More importantly, financing programs can have a positive impact on your bottom line by helping you to generate sales at higher price points. Consumers may be more likely to make the purchase or even upgrade on the more expensive model when presented with an attractive monthly payment plan. 

4. Financing programs have hefty penalties for those who don’t pay on time

The “No Payment, No Interest” credit plans offered by many big box stores have earned a bad reputation for being unfair and unfriendly to consumers. That’s because these programs often charge interest from the date of purchase when the total amount is not paid in full within the “No Payment, No Interest” period. 

By contrast, a fair installment loan charges interest on whatever the remaining balance is after the promotional period. This approach makes a big difference to the total purchase price, and helps retailers maintain a healthy relationship with their customers that encourages repeat visits and purchases. 

Final thoughts

A new generation of web and mobile apps is making point of sale financing available to retailers of all types and sizes. Flexible, budget-friendly monthly payment plans are a great way to overcome a customer’s apprehension when purchasing big-ticket items. 

Just make sure that once you implement a financing program, you communicate the options to each customer and help educate them on how advantageous these plans really can be. Give your customers more ways to pay, and they’ll bring their business back to you time and again. 

About the author:

Michael Garrity is a 15 year veteran of the financial technology industry, and the CEO and co-founder of Financeit, a platform that enables businesses to offer consumer financing anytime, anywhere. You can find him on Twitter.


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