Consumers typically make the initial payment at the point of sale, but not all installment payment methods require an upfront payment.
These payments or installments can be paid weekly, biweekly, monthly, or on another predetermined payment schedule.
There are several key differences between a traditional installment loan and an installment loan. Notably, the installment purchase method focuses more on closing sales than on the customer's ability to repay the loan.
Installment purchases typically require a less comprehensive credit check than other forms of retail financing. This makes it attractive to consumers with low or limited credit who do not qualify for traditional lending options.
While installment purchases have become a buzzword in the payments industry during the COVID-19 pandemic, the concept itself is not new. In fact, installment loans were the most common form of credit before 1977.
In recent years, fintechs have rebranded traditional installment loans as an installment purchase method by adding features such as installment models, omnichannel access at retailer websites. and non-bank friendly approach.
The installment purchase method is a modernized version of retail finance. There is certainly a high degree of appeal, but with limited credit policies, consumers need to control their retail purchases so as not to spend too much financially.
There are several key consumer demographics that have a higher rate of using installment purchases.
Mercator Advisory Group findings from a spring 2021 survey of 3,000 US adults found that 52% of 18-24 year olds have used installment purchases or short loans. term in the past 12 months, compared with just 12% of adults 65 and older. On a related note, it's common among consumers who don't have enough credit, often adults in the youngest age group.
With a limited or poor credit history, the installment purchase method becomes one of the only financing options available. Since young adults often have fewer resources to finance their purchases, installment purchases become especially appealing.
Installment purchases are also popular among middle-to-higher income consumers. One possible explanation for this is that affluent customers are more likely to shop on demand offering short-term payment options.
Finally, installment purchases are used more often by online shoppers than in-store. This makes sense, as online merchants from Amazon to Movi offer installment purchases at checkout for e-commerce consumers.
COVID-19 has triggered rapid consumer adoption. We can't talk about the installment loan space without mentioning its remarkable growth during the pandemic. Consumers looking to avoid taking on new credit card debt during the economic uncertainty of the pandemic have flocked to merchants' installment purchase offers.
There are clear benefits to consumers who choose to use the installment service. The most significant benefit is that they have the option to take home items they have not paid for in full. Fixed payment schedules, simplified checkout processes, fast approvals, and interest-free options are attracting consumers who want to buy.
It also allows consumers to spend more than they could use other payment methods.
According to a survey of 44% of consumers, installment purchases are somewhat or very important in determining how much money to spend during the holidays. Nearly half of 48 percent said the installment purchase method would allow them to spend 10 to 20 percent more than if they used a credit card.
For merchants, installment purchases drive revenue by providing customers with an accessible and seemingly more manageable way to make more expensive purchases.