The Pros & Cons of Offering Financing

[Joe Marconi]

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[Beep]

I just joined as a sponsoring member to inquire the same. We're suddenly in a different world today after decades of low inflation. Things became way more expensive overnight. Even those of us with good financial discipline are finding it harder to cover unexpected expenses. 

What kind of interest/demand are shops seeing from customers for financing, installment loans, etc? If you offer financing, what have you liked/disliked about the process and experience?

Our profile is not setup yet, but in short, my company Beep offers "Buy Now, Pay Later" (BNPL) Point-of-Sale financing. Kind of like what has become very popular for e-commerce but we focus on brick-and-mortar businesses. 
 

[rpllib]

Here are my cliff notes from last weeks leadership meeting with my front counter staff:

the incredible importance of offering financing, all the time, and especially in times like this
if your concerned prices are getting out of hand, offering financing to offset
even folks that have the money will consider financing, "until things cool off"
maybe no better time to offer financing to those that don't need it. 
folks that don't need financing will not let financed accounts go past free period, but still appreciate
 

Our shop is in a area where the average household operates closer to their "breakeven" point for household expenses, than many. Any bad news typically effects us earlier then markets with more affluent households. Traffic was off by 11% in April and sales by 24%, after a record 24 month period right up thru the end of the first first quarter 2022. We tend to attract the "higher" income households in our market, and rarely have any kind of "payment" issues. If I compare my financial diligence and attitude that i practiced in my lifetime, to those households, then I believe that those customers that can afford repairs, may still be interested in financing with free periods as a cushion, against uncertain times. I have used hundreds of thousands of dollars in "free money" financing over my lifetime very effectively, without accruing interest charges, even though I could have paid for most of those dollars, for most of my life. 

If you are worried about driving your customers into higher debt, then make sure you are putting your extended financing in the hands of the ones that don't need it, not concentrating on the ones that do, or only offering as a last resort.  We use Synchrony Card for as many as can be approved for it, which offers 6 months interest free. This is most of our financing. 

We brought in Easy Pay, for those that can't be approved for tier one credit. I still believe it can be used effectively for those with credit issues, and comes with 90 days interest free. We strongly encourage payoffs within the free period. 

We run 6-8% of sales that are financed, average throughout the year, with tire season months running 15-20%. I would like to see the average in the 15%-20% range for the year. 

Right now, maybe more than any time in my business career, I believe we have the best opportunity to offer free money to those that don't need it, but would appreciate it. 

% financed, is now a monthly metric that we track and discuss weekly. 

 

 

[Joe Marconi]

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[Joe Marconi]

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[xrac]

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[bantar]

When people say that they don't have the money, I see three possible reasons:  1) They really don't or 2) They have prioritized other non-essential items above this expense, or 3) They need more time to pay as they may not have a slush fund readily available, but can easily absorb this repair into their budget with time.

I remember one no-money situation where the lady was in a hurry to get to the nail salon to have her expensive looking nails done again.  Did not finance as it wasn't a priority to her.    Or, that new iPhone just came out and I've almost got enough saved up for it.  Hmmm.  Car repair or New iPhone?  In truth, the new iPhone, that's only 9 months newer than your current one, will give you more joy-for-your-money than the car repair. 😁 So it truly makes the decision harder.    Less so, if the car is not running.

However, we don't look down on anyone needing financing nor question why.  We encourage them to only take it if they can stay within the no interest period, otherwise we discourage it.   

We recently had to finance a lady for a repair that came at a bad time.  She was moving and had new deposits to put down, moving expenses, etc.   She had no brake power assist and didn't have enough meat-on-the-bones to bear down on the brakes with full confidence.   She had to drive from appointment to appointment for her job.   This was a Positive Financing outcome.

(Interesting side note:   I was listening to a podcast with 360 payments as a guest when the topic of CC Chargebacks, came up with respect to financing.  Chargebacks are unique to CC and thus don't apply).

On 5/1/2022 at 6:25 AM, rpllib said:

Right now, maybe more than any time in my business career, I believe we have the best opportunity to offer free money to those that don't need it, but would appreciate it. 

% financed, is now a monthly metric that we track and discuss weekly.

I recently noticed that we are seeing a spike in Financing, but I didn't really pay much attention to it... until I read your note.  I track the numbers, but didn't think about any patterns.  Well, by golly, there are patterns!  It's on the rise.  Already, in the 1st 4 months, we're 35% higher than all of 2021 financing.

Last month, my financing jumped to a record 14.8% whereas, the previous month it was only 5.2% of repair sales.  2021 had a mere 2.2% finance rate overall.  I'm not exactly sure why we are seeing a spike, but I do know that this program is helping us to capture large tickets that might otherwise do partial or nothing without it.  

I don't think we are seeing the "free money" folks.  I'd say 100% are time shifters.

[Joe Marconi]

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[Beep]

Thanks for the warm welcome everyone!

What we do is along the lines of Easy Pay, mentioned above. BNPL really is coming into its own as a bridge between cash upfront and the usual financing based on revolving credit. Typically the payoff period is shorter. And it really is more a "time-shifting" option for those who can't or don't want to carry a credit card balance. Also, a lot of consumers have grown accustomed to using BNPL for online purchases, and we see very strong indications of demand for similar payment options at brick-and-mortar businesses. 

I'd be curious to hear how much financing is moving the needle these days on those large tickets -- both in volume and total purchase value.