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Saving The Sale

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Save the Sale Using Nonprime Financing Solutions

Even though the economy is slowly improving all the time a lot of consumers are still a little too strapped for cash.
The unemployment rate reached its lowest point for nearly eight years as it was down to 4.9%, and it hasn’t been lower than 5% since March of 2008. Even so more people are working for less money than they did before and some people have just completely given up on getting a job.

Millennials and their demand for durable goods that last a long time are on the rise too. Many of them don’t qualify for financing programs or even have credit cards.

When you consider the credit situation of customers a great option for retail stores looking to expand their business is nonprime consumer financing or a lease-to-own program.

What makes nonprime important?Nonprime financing provides retailers with a way to go beyond credit financing to increase their business. It’s understood that the success of a credit scheme is how many people use it. This is called the take or acceptance rate and is the percentage of customers who take you up on the offer. Retailers may focus on the approval rate but that’s only part of things. The acceptance rate shows us that the retailers are providing the right financing options to the right customers.

Sales associates may find it difficult to take someone from prime loan products or lease-to-own products to a near-prime or nonprime product, especially when the customer deserves a better offer. So it becomes even more necessary to have a second option.
Nonprime financing options have been gaining steam since 2009 when lenders reduced the amount of lending to nonprime customers. This whole thing has been driven by retailers needing to match customers with the credit option that is right for them. Because of this the financing strategy of furniture stores has become more of a ‘waterfall’ financing. This is where prime-based customers are approved for the 0% for 24 months they see advertised in the media.

If someone isn’t approved for this scheme they are often given a second look by a lender, who offer them a similar product with 0% for six to twelve months. If they still fail to be approved for that then they still have the rent/lease-to-own option.

Waterfall financing is when a customer fills out just one form at the start and they are approved quickly either by a primary or secondary lender, or a rent/lease-to-own provider. It’s not uncommon at all to see an approval rating of 90% or more with waterfall financing. This brings in more sales for a business and reduces the amount of customers leaving empty-handed.

When retailers don’t offer such a no-credit-needed option to their customers who are strapped then they are handicapping themselves. Consumers always want quality products in their homes. They may sometimes need a different way to get them. When a customer doesn’t qualify for primary financing options they still want to be treated with dignity and respect and be offered other choices.

Don’t forget there are over 70 million people in America who don’t have what would be considered a traditionally acceptable credit score.

We’re seeing a growth in the amount of companies that continue to prove these financing options are effective. A credit score can’t be improved overnight no matter how much people with problematic credit wish it could. But they still have the desire to purchase.

Retailers are coming to terms with the idea that these customers step in to their store every day and, if they aren’t offered effective solutions, will walk right on out again. As more retail outlets accept these financing options, more options become available to these customers.

What’s happening in the market?So what is happening with new products for nonprime prospects? The following are some examples.

Our Touch n Buy system is making use of a pre-approval program. Customers can use their website to get pre-approved for credit before they even enter a physical store or even purchase online. An even easier option is a kiosk or tablet that the consumer can use to get qualified without pressure from a sales associate.

Touch n Buy does not require a lot of information from their customers beforehand. All a customer really needs to provide is their name, a mobile phone, an email address, their social security number, date of birth, and an estimate of their yearly income. Customers are typically approved in seconds and have the money in minutes.

If the customer leaves the store with some finance dollars remaining, then the credit is good for up to 30 days.
Touch n Buy also don’t place limits on what can be bought with their credit. They provide a dollar amount the customer can spend as they wish.

Retail outlets want their sales associates to have faster response times and less paperwork in order to work less for the same result. Because of this technology is more of a focus for lenders. Touch-n-buy doesn’t buck this trend. They have a platform where people can apply online with no paperwork.

Lenders deal with what they call ‘cascade’ approval processes and it seems to be going well.

They move through primary, secondary and tertiary options in one go using the information customers provide to speed up the transaction process and make things easier on customers.

There are hundreds of stores in America making use of the online approval process. It is a way for customers to decide how they want to buy something from the comfort of their home. When they are approved they just have to go to the store to finish the transaction with the sales associate on a platform or kiosk. Retailers also like this option because it increases the amount of foot traffic in their stores.

They understand that the more information they get from their customers, and the better it is, the better the program works for both the company and customers. It also eliminates a lot of guesswork for the sales associate. They know what a person can and can’t afford and can offer them the right products.

But how safe is this?A big question now is how safe these financing options are for retailers.

The good news is that these options are completely risk free for retailers. These options are non-recourse, which means that all the risk of defaulting is taken by lenders, similar to how the risk is taken by prime-based lenders.

Some programs are a bank-sponsored lender which means they follow of the rules and regulations that prime-based lenders do. The quality of credit scores has stabilised a lot lately and Touch-n-Buy believes that low interest rates will be maintained for a time yet.

What these lenders does is essentially buy merchandise on behalf of their customers. This means that they are able to return things on their behalf too and get their money back.

If a consumer was to get in trouble or want to return the item they return it to lender, who then return it to the store. They also pay dollar for dollar. They give the customer and the store 100% of the money with no discounting.

Other Lenders we use say they do not provide financing. Instead what they offer is a non-credit, lease-to-own product that gives the consumer access to their product but without long-term financial obligations.

They say that the real value of their products comes from giving the customer all the credit options available with none of the obligations that usually come with credit transactions. They are committed to providing financial flexibility to their customers.

Each state has their own rules on lease-to-own transactions.

Lenders ensure the customer understands the product before signing any paperwork, and that all the paperwork is properly filled out.

If a customer does need to return an item, the lender works things out with the customer without putting any burden on the retail partner in question.

Touch-n-Buy wants to stress that they don’t want to provide customers with loans they cannot repay.

They are concerned that lenders will often not look at whether or not an applicant has the ability to repay the loan as part of their underwriting strategy. It is an irresponsible practice that attracts the attention of regulators. If this practice continues and more people default, then it could put an end to financing options such as deferred interest options.

What are the benefits of nonprime financing?One of the main benefits is that salespeople have no excuses to not sell products. It also really opens up the market. Right now over a third of people aged 18-49 do not currently have a credit card.

When retailers use a simple approach to financing such as the one Touch-n-Buy provides then the sales process becomes seamless for all involved. Retailers can also cut down on the amount of financing options they offer. There are outlets out there with up to seven different financing options. This just confuses both the customer and the retail associate trying to explain them. Go for simple and adopt a “less is more” approach to financing.

What a retailer wants at the end of the day is to increase their sales. One way to boost sales is to make sales they would have otherwise lost out on and making new customers by providing financing options that work.

The retail partners Touch-n-Buy work with saw an increase in sales of up to and above 15% when they offered a second-look program. They also saw an increase in repeat purchasers thanks to credit options that made customers more loyal.

Because nonprime customers have less access to credit they will only shop at stores that accept their credit.

It’s also important to really advertise and show off your options. If a customer has credit problems, then they will leave a store that they don’t think can cater to their needs. Then they just go elsewhere and someone else gets what should be your business.

“Financial consulting is not just about solving problems; it’s about identifying opportunities and unlocking the potential for growth, because financial is not just about numbers.”

Mason Adams

CEO ZipLoan