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Small Businesses Seek to Attract Customers by Using Installment Loans

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By    |   Wednesday, 14 November 2018 08:40 AM

Square, a financial services company for small-business transactions, has recently rolled out a new feature allowing merchants to provide installment payments as an option for their customers.

Consumers can be approved for qualifying purchases between $250 and $10,000, both online and for in-person transactions.

In recent years, installment loans have become a popular form of payment for consumer goods, with the intention of increasing sales by reducing up-front cost.

According to Square, 68% of consumers said they would be more likely to consider a small business if it offered financing options. Affirm, one of the most popular companies for this payment type, has expanded to over 150 stores, including Casper, Wayfair, Expedia and Peloton. Consumers have embraced this form of payment, as it allows them to buy items and experiences without having to pay all at once.

How Does Square Installments Work?

Square Installments is a service for merchants that allows consumers to pay for their products each month rather than all at once. Consumers must fill out a short online application on their device, and if they are approved, they will be given repayment options of three, six or 12 months and the annual percentage rate (APR) that they qualify for, which ranges from 0% to 24%.

Should You Use Installment Payments?

Whether you should pay by installments or not will really depend on the rate you're offered and whether you'll be able to afford the payments each month. If you're offered a 0% interest rate, which happens, it may be a good form of payment to use if you can afford it and don't want to pay in full right away. But if you are offered an APR above 0%, you should determine how much the loan will actually cost and whether that extra cost is worth it.

Using this form of payment is not generally recommended, as you should really only buy consumer goods if you have the money. Also, using Square Installments will not help you build credit, as the company doesn't report to any credit bureaus. It may be better to use a credit card, where you can pay off your balance within the month before incurring interest while building your credit.

Other Financing Options to Consider

Instead of using an installment loan, you should look at other ways to buy these products if you can't pay the full amount right away. However, the best thing to do is to wait until you have enough money to actually afford what you are buying, so you don't have to pay interest. If that isn't possible for you, here are some other options to consider.

1.) Credit Cards

Credit cards are a great way to purchase consumer goods, if you pay off your balance each month. As a bonus, many credit cards offer rewards based on your spending, such as cash back, travel and hotel points, and can help you build credit. In contrast, if you use an installment loan like Affirm or Square, you will incur interest, unless you are approved for a 0% APR, and you won't get any rewards. On the other hand, if you are unable to pay off your credit card within the month, you should compare your credit card APR to the installment loan APR to see which would save you the most money.

2.) Personal Loans

Another option to consider is taking out a personal loan. If you are making a big purchase that would make more sense with a loan over a credit card, you should explore your personal loan options to see if you can qualify for even lower rates than those offered by Square. Many personal loans have lower rates than Square and Affirm; however, it may take about a week to be approved for a personal loan. With these installment payments, you'll get an immediate decision and financing after the company verifies your identity and performs a soft credit check.

Joe Resendiz is a Research Analyst at ValuePenguin, where he focuses on personal finance and credit research to assist consumers. Previously, Joe specialized on public sector and infrastructure financing at Goldman Sachs. He graduated from the University of Texas at Austin with a BBA in Finance.

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Square, a financial services company for small-business transactions, has recently rolled out a new feature allowing merchants to provide installment payments as an option for their customers.
small, businesses, customers, installment, loans
Wednesday, 14 November 2018 08:40 AM
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