What You Need to Know About In-House Customer Financing & 4 Business Types That Will Benefit From It

Throughout the history of lending, it has gone through several stages of democratization. The big banks used to have a monopoly on selling quality credit products and people who didn’t want to go to a pawnshop had no other choice but to try and qualify for an unlikely loan from a traditional institution. But things have changed.

A couple of years back, the technology made a leap and alternative lending as we know it came to be with a myriad of digital lenders rising and offering a new way to work with credit. Now the new age begins with lending management systems being easy enough to maintain and affordable enough to offer an additional revenue stream for regular business. At the same time, personal savings rates have dropped which means that people now more than ever need more accessible and affordable point-of-sale credit products.

By the way, please, visit our Pay Later Hub, where we have collected everything you need to start your own BNPL operation in-house to offer payment plans to your consumer or business clients. TurnKey Pay Later – BNPL lending automation 

In-house consumer financing, no matter if you provide goods or services, helps a venture offer more payment flexibility and helps them score more business even when clients don’t have all the money to pay upfront. Not to mention, the clients can also be extremely appreciative of this practice as it gives them a way to get what they need on conditions that work for them, without having to deal with the middleman’s rates and fees.

Here’s how it works in a nutshell. If you’re selling any kind of goods or services that people want to buy in several payments, you may want to scale this to a full-fledged in-house financing operation. Having your own lending platform can sound expensive and demanding. But it’s really not the case anymore.

In this day and age, you can easily deploy an all-in-one lending automation platform like that of TurnKey Lender within days. Our company offers a holistic AI-driven solution that addresses all the needs you’ll have as a provider of credit products: from risk assessment, loan origination, and servicing to collection, integrations with credit bureaus, reporting, and even regulatory compliance. Here’s a short video with an overview of the benefits and features TurnKey Pay Later provides.

Before, you would need to deny clients who can’t pay you in a single payment, redirect them to a bank or trust them to return the money. Now you can do all of that automatically on your own turf. This way not only do you get to instantly convert the hot lead into a paying client who is tied to you by weekly/monthly payments but also get to keep the additional margin on your product in form of a percentage. If you choose to charge them an additional percentage of course. As a provider of in-house financing, you deploy our platform within days and your clients instantly get access to safe credit.

You build meaningful relationships, you grow your business’ reach, and at the same time make more money by keeping it in your business rather than giving it away to a bank.

Expensive products are sold easier with in-house consumer finance

As a business owner, you don’t want to redirect your clients to a third-party lender at the point of checkout. You need to control the entire buyer journey, to build your own relations with the client and make profits yourself rather than outsourcing them.  And no matter if you work in a developing or developed market, your buyers have a psychological bias which makes buying decisions easier when they are covered with credit funds.

People still want to buy smartphones, TVs, computers, cars, renovate their flats, etc. So in today’s (and tomorrow’s) markets, the winning business will offer in-house financing to make the buying decision easier in the cases when one doesn’t have enough cash in their pocket or in their bank account.

See, with the ongoing all-consuming digitalization, the collection of loans will only get easier. Cause you’re always on the radar of whoever needs to find you. The business risks diminish and the returns grow.

Build lasting customer relations with flexible credit products, and intelligent automation

A business offering in-house financing adds one more selling point to their brand. Given a choice, the client will pick the store that lets them get instant safe credit inside the store rather than force them to go to a bank to get a loan. No one wants to wait for weeks to get approved for a loan in a traditional bank to buy their kid their first smartphone. Not to mention, things like this are what makes your business look more credible. It’s like the guarantees you may or may not offer. It says that you’ll be there. The deal works both ways. You are there for them, they are there for you. They pay you back and then they come back for more thanks to your simple experiences.

Customer builds their credit history with you while enjoying the benefits of your in-house financing program

This one may include slightly more effort, but if you report your in-house financing operation’s details to a credit bureau (which either way may be required by your local regulator), your clients also get to improve their credit history while getting the product they want, no matter how expensive or insignificant.

TurnKey Lender Retail platform provides your business with a bank-grade Decision Engine that is configured to your audience and local KYC rules. Proprietary machine learning networks and deep neural networks process loan applications instantly, providing you with a 360 view of the customer’s creditworthiness.

Businesses that benefit from in-house financing most

In-house financing for the automotive industry

Automotive industry at the moment is the biggest market practically applying in-house financing. As of 2018, 84% of all vehicles are being leased or financed and a lot of that is done in-house.

At TurnKey Lender we offer auto financing software to help this kind of businesses strive. The all-in-one platform we provide delivers speed and accuracy in processing of a new application, easy management of customer payments, refining their risk profiles, or mining customer data to identify marketing opportunities. This advanced car dealer financing software can be customized according to your decision rules and your risk tolerance parameters.

Learn about TurnKey Lender for Auto Dealers.

Medical and dental services and products financing

Medical businesses, which are often not covered by insurance, can benefit greatly from implementing an in-house financing option. For example, if you run a plastic surgeries clinic or offer dental services, your benefits are two-fold. On one hand, you tie the clients to yourself as they do tend to come back to you for maintenance or new procedures and you get to convert more clients who don’t necessarily have enough money to afford the service they need. And if you’re wondering, TurnKey Lender’s dental and medical financing software can easily make your business ready for offering in-house loans.

TurnKey Lender provides a dedicated Medical solution tailored to the needs of clinics and medical professionals who’d like to implement an in-house consumer finance platform:

TurnKey Lender Medical 

In-house consumer finance for any retail products

No matter what you sell, and no matter the country you operate in – if you’re selling products which are more expensive than the average receipt from the groceries, you should consider having a point-of-sale crediting option. This makes buying decision a lot easier and this is especially lucrative considering the type of clients retail deals with. There’s no problem with going to a store across the street if yours doesn’t offer to distribute payment for the new iPhone into several monthly payments. So whenever you’re ready to take your business to the next level, you can use our best-in-class retail lending software to get ahead of the competitors.

TurnKey Lender Retail is an industry-leading solution for end-to-end automation of lending including vendor relations and custom functionality for a streamlined crediting process for both the borrower and the lender.

TurnKey Lender Retail

Renovations and furniture installment plans

Just like people will always eat, they will also always need to buy furniture and renovate their houses and flats from time to time. And I don’t have to tell you that it costs a pretty penny to do any kind of substantial work in your living arrangement. The business that offers credit on-sight will be in a beneficial position to those who don’t, by default.

Industry-leading and innovative companies in the US and around the globe are already using TurnKey Lender automation to offer flexible and intuitive financing to their clients in-house. Bankers and retailers, auto dealers and medical professionals, renovators, FinTech startups, and many other businesses rely on TurnKey Lender technology for easy-to-use yet robust and intelligent automation. You can find businesses in your industry that already benefit from TurnKey Lender here.

Credit models you can use for your in-house financing program

The new socially distant economic and social reality has boosted the reemergence of a variety of consumer market hits which are made fully digital by TurnKey Lender, like leasing, rent-to-own, lease-to-own, e-Commerce, retail finance, merchant/vendor finance, etc. Learn more about our company here. And for all of those, you as a lender can offer credit products with different terms.

• No charge – in this case, in-house financing becomes the ultimate selling advantage of your business and a marketing tool that helps you generate more customers rather than makes you money directly. But it does come at a cost since you’d need to cover the expenses on maintaining a platform out of your other profits.
• Flat rate – you can also charge a flat monthly rate for issuing and servicing each loan up until the point of repayment. Alternatively, you can charge a one-time setup fee enough to cover your expenses and use in-house financing simply as a tool to drive more business to you.
• Discount rate – another common choice is to offer a rate which is lower than that of a bank. This way you get the competitive advantage of serving the client quickly in-house and at the same time make money to cover your expenses (and possibly more, depending on the size of your operation). So if a bank usually charges 5% for a loan on your kind of products, you can charge 3% or even 4.5% and still come out on top.

Forbes Council: Options For Retailers Considering Point-of-Sale Financing To Win and Keep Customers

Benefits of in-house consumer financing 

When given a choice to deal with a bank as a middleman or to get a loan directly from the business owner, customers logically are compelled by faster approvals and easier application process of in-house financing. In the past, this would go hand-in-hand with high risks for the lender. Now, thanks to advanced borrower evaluation algorithms, businesses can manage to reduce risks to a minimum and safely approve only the borrowers who are likely to pay back their loans.

So, compared to a business that doesn’t offer consumer financing, what benefits do you get if you do?

• Better user experience – First and foremost, quickly getting a loan at the point of sale is convenient. These days, getting an installment plan for a phone or a car isn’t something shameful. Credit became a part of our lives and is viewed as just another financial instrument. So for a buyer, even if they aren’t going to use it right away, it’s a piece of information that may stick with them and when they need your financing program, they’ll come to you, not your competitor. And even if your conditions are slightly worse than those of a neighboring bank, chances are that the convenience of sealing the deal on the spot will prevail.
• Easy to apply – Given that you use a modern lending automation platform to power your in-house financing program, application process and borrower evaluation can take minutes while keeping you, the lender, protected.
• Flexibility – Even though launching a customer financing program requires some additional efforts, it not only has the potential to significantly grow your business and add a sizable revenue stream for your operation, but you also become more attractive in the eyes of the customer since you present them with a choice. In addition, your own program will be more flexible in terms of filtering process than that of a bank. And since you’ll be using an advanced scoring model like TurnKey Lender’s, you’ll be able to approve more people who wouldn’t have been eligible with traditional financial institutions.
• Builds credit – Customer financing loans are usually rather small and paid off quickly, so if you’re reporting to a credit bureau (and some jurisdictions require that), your borrowers can rather easily and quickly improve their credit score.
• Drive repeat business – Once a client has signed up for an installment plan, you’re expected to stay in touch with them. And it’s in your best interest to build real human relations with them by means of truly helpful reminders, tips, sales warnings, possibly even a discount on their interest. This way, next time they will think about you and your services or products by default. Because often we prefer to deal with the people we know even when the practical thing is to look for someone new.
• Increases average order value – Since buying decisions are made much easier through credit products, the users are more likely to buy something they wouldn’t have if they had to pay upfront. For each business, the preferable payment model will differ. If you’re not that dependent on the cash flow generated by full payments upfront, pushing customer financing might be a good idea since it lets you make more money through interest and keeps you on the radar of the buyer longer, letting you upsell and promote the products or services they may need in the future.
• Compete with large chains – In the age of total globalization, it keeps getting harder to compete with the big guys that often can offer products at almost wholesale price thanks to the volumes they sell. In-house financing enhanced with a personal touch may be the winning advantage that will get the clients to make a choice in your favor.

Risks of customer financing

• Changes in cash flow – Of course, not all of your customers will opt in for a loan to get your product or service. But many will and this can change the cash flow of your business. At the same time, you still need to fill up the inventory and pay salaries and utilities. And like any important change in the business model, you will need to adjust. So make sure to consider the potential for this change in your cash flow before launching in-house financing for your operations. Keep in mind that any business needs time for adjustment after implementing customer financing, but if done right it can be generously covered by the growth in the number of customers
• Risk of bad debts – Even the most advanced loan origination and borrower evaluation software can’t provide a 100% guarantee that every single loan will be paid back on time and in full. The thing is that even with the most thorough of checks, you can’t predict everything that may happen to a borrower. So there’s always a risk of bad debts appearing and piling up.

The way to combat these risks is to:

1. Use a lending automation platform sophisticated enough to weed out as many wrongdoers as possible.
2. Negotiate a deal with a local collection agency that would help you get the money if need be.
3. Attract enough new customers to outweigh any bad debts that may appear.

In all honesty, anyone who sells credit products has to acknowledge the risks of some of their borrowers becoming delinquent.

Point-of-sale financing vs your own customer financing operation

There are two major ways you can go when it comes to offering customer financing. You can either get a deal with a point-of-sale credit platform that will finance the loans and usually will pay you money upfront. But at the same time, they will get to keep the interest and possibly even charge the merchant for processing payments. This is kind of like what a bank would do. But if you don’t have any resources to put together a new revenue stream for your business, this may work as a marketing tool to convert more customers.

A different approach would be to get an all-in-one platform like TurnKey Lender. It’s deployed by our specialists on your side and you stay fully in control of what’s going on. One may think that taking care of credit checks and underwriting sounds daunting. But when you have the most intelligent software on the market doing all the heavy lifting for you, it’s really not that hard. You can see that for yourself with our free trial.

Of course, you’ll need to do some initial research in terms of local regulations and legal obligations for businesses that issue loans. But as a result, you get to keep the control and the profits. It’s the same as having your own website vs having a social media account. With TurnKey Lender you are in control and you are the end beneficiary.

How to offer in-house financing in your business?

The industry for retailers is not very regulated, we have to support sales tax, customer agreement (called loan agreement in our system, but sometimes they are not loans), notifications, etc. regular stuff, nothing special

We offer intelligent end-to-end automation that allows any business to sell their products or services in installments with flexible credit product settings and AI-driven credit decisioning which ensures unmatched loan portfolio quality. TurnKey Lender is a technology company. We’re the backbone technology for customers that want to provide PoS loans to make monthly payments, etc.

Since millennials don’t really like credit cards and traditional lending that much, this generation more than their parents is likely to turn to point-of-sale financing. And you, as a business owner, have a couple of options to provide them with this freedom of choice.

• If your business is really small and you can manage the borrowers manually, you can provide credit the old way and just hope that the people will bring or send you the installments every month or every week. But that’s not only unscalable but also highly unreliable.
• You can also partner with a Point-of-Sale credit provider and integrate with their platform. This way you often get access to their funding to back you and minimize if not eliminate your risks of non-return. But you also miss out on a lot of opportunities.
• Or you can cover in-house financing yourself and get a ready-made all-in-one lending automation platform to run your own point-of-sale operation. This way you get more responsibility and stay in control. But it also includes a bit more work in terms of servicing and collecting if your borrowers aren’t particularly punctual with their payments. Either way, this is the biggest fish to fry right now and if you get the right lending automation platform, there won’t be that much hassle. You can reach out for a free trial of TurnKey Lender to see just how easy it will be, no strings attached.

Learn more about starting an in-house customer financing the right way. 

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Final thoughts

After all, why do we even need lending? To get the goods and services we need on the best conditions possible. As technology moves forward, it becomes more and more clear that in-house financing is going to play a huge role in the future of lending. Mostly because it’s a win-win situation where both the lender and the borrower get exactly what they need and there are no middlemen involved whatsoever. The technology is already there and you can rely on it to get ahead of the competition with very little effort. So right now is the best time to launch the in-house financing program for your business.

Request a live demo of TurnKey Lender and start your digital lending journey today.