Choosing Wisely: Consumer Financing's Edge Over Credit Cards
Welcome back to The Gateway to Growth!
Last month we highlighted consumer financing as a competitive solution for businesses to combat rising operating costs. In this edition, we will begin to discuss how our solution stands against other payment methods, specifically credit cards. Credit cards have become the go-to payment method for everything from daily purchases to major expenses. But is this truly the most cost-effective option for your customers in the long run?
Join us today as we debunk misconceptions about credit cards and advocate for buy now, pay later (BNPL) as a superior alternative to purchasing high-ticket items.
The Modern Wallet
Credit cards have become a fixed extension of the modern consumer. Whether nestled in your wallet or stored on your phone- they offer convenient access to funds for any purchase, at any time. And for most, owning at least one credit card is essential– rightfully so.
Credit cards excel at creating frictionless transactions, eliminating the hassle of fishing through your pockets for stray coins and crumpled bills. And when it comes to small daily purchases, these cards function equivalently to cash– provided that you can settle your balance in full each month.?
But the fact of the matter is that many people don’t pay off this balance at the end of the month. Instead, they continue to make partial payments on their balances, accruing more and more interest. This is a reality that credit card companies prey on as their main source of revenue. It is also a reality that is not questioned as much as it should be.
The Psychology of Payment
Paying with a credit card often introduces a psychological disconnect between a customer and their spending. With cash or debit transactions, the immediate loss of funds signals a tangible consequence to a buyer, emphasizing the tradeoff between receiving a certain good or service in exchange for a noticeable loss.
Credit card payments can be a bit more abstract since they don’t immediately trigger a sense of loss in the consumer’s mind. While we understand that the money spent is no longer ours, there’s no visible reduction of our available funds until the end of the month or until the full balance of that transaction is paid off.
The Credit Card Trap
Now in a perfect world, this would be no issue. We would all be able to keep track of our monthly credit transactions and ensure that our spending never exceeds our means. Ideally, we would pay off our credit card bills in full at the end of each month, no interest, same as cash.?
But let’s face it– we aren’t in an ideal world. And when the end of the month arrives, many Americans find themselves unable or unwilling to settle the entire balance of their credit card, leading to compounded interest accruing each month. In other words, that $5 Happy Meal you bought last year could still be accruing interest if you haven’t yet paid off your credit card debt. And credit card companies thrive off of this.
Take a look at some recent statistics:
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So, while we hope that all of our readers have a solid handle on their personal finances, statistically, your customers don’t. And so the question becomes, how can you and your company adapt to accommodate this reality?
Credit Cards Aren’t as Ideal for High-Ticket Items
For purchases exceeding $1,500, many customers default to charging that transaction to a credit card. This option appeals because it delays the immediate withdrawal of funds, offering the flexibility of making minimum monthly payments. This perceived flexibility convinces customers that it's a manageable way to handle larger expenses without considering any broader implications.
With no enforced final payment date in sight, these purchases can continue to accrue interest each month- costing a customer more in the long run. But since these fees are hidden, they often escape the notice, and concern, of most merchants and customers.?
The Choice to Finance
Lending and consumer financing, on the other hand, presents a starkly different scenario. Financing often carries a reputation for being more costly overall– even though the final cost can be cheaper for customers in the long run. Ironically, the transparency of a lender’s rates attracts far more criticism than warranted, while the hidden fees of credit cards often go unmentioned.?
With this in mind, consider WeGetFinancing as an alternative to credit cards when it comes to high-ticket transactions. Our BNPL technology provides customers with an option at checkout to complete a purchase and pay for that transaction later– with an end in sight. After matching each customer with a tailored suite of lenders willing to fund a transaction, we then present your customers with a number of preapproved offers, each with its own fixed rate and timeline from start to finish. These offers are shown directly through your checkout page and give your customers autonomy over their purchase. In some cases, our lenders will even extend the option of 0% interest in a same as cash offer spanning over 24 months. Offers like these are undoubtedly less costly to your customers for big-ticket transactions.???
What this does is give customers the flexibility they desire when making more costly purchases, without the possibility of falling into the trap of continued interest that credit cards enable.
Why Should You Care
Whether a specific customer would prefer credit cards over financing varies from person to person, depending on their particular spending habits. But the important message to take away from this is that there are other options out there. And providing customers with the autonomy to make that choice is vital to their perception of your business and its offerings.?
In many cases, as we hope you have learned today, a significant portion of your customers likely have credit card debt– it’s almost inevitable. Recognizing this reality is crucial because it suggests that these customers may be less willing to continue adding to their existing balances, instead forced to make trade-offs that could impact your business’ sales. Give your customers the ability to choose for themselves by adding a buy now, pay later feature to your checkout. Integration is simple and the effects are profound.
Newsletter curated by Carissa Civitello, Operations Manager at WeGetFinancing.
For more information on WeGetFinancing and what it can add to your business, please visit our new website.
Missed our last edition? Get caught up by reading From Sticky Prices to Strategic Solutions: Thriving in a High-Cost Environment!