Are No Credit Lease Products Helpful or Harmful To Consumer Retail Businesses?
If your business is in consumer retail, chances are you currently or have in the past utilized one of the many no credit lease products on the market today. Companies like Progressive Leasing have been around for well over a decade. These companies aren’t hard to find. As a matter of fact, they have likely found you.
No credit lease programs are in such high demand, that we have always carried one or more of these products in our arsenal as well and we have had a significant number of clients that have leased in excess of $100,000 of their merchandise each month.
But here’s a question I’ve been asking myself lately and I will pose it to you as well- is your no credit lease product doing more harm than good?
Here’s a story I’ve seen repeated more times than I can remember.
ABC Furniture Store latches on to a no credit lease program and the sales start coming in. ABC sees a good thing and starts to really lean on this product, promoting it every chance it gets. They begin attracting a customer base that relate to this product and it now represents 80 percent of their total business.
Everything is going great until, for no detailed reason and without notice, their account with the no credit required company is cancelled.
Would you be surprised to learn that this happens to 80% of our retail business clients , eventually. That’s why there are so many no credit lease options. Merchants jump from one no credit product to the next.
There’s a logical reason as to why this happens. And assuming you’re not committing fraudulent business, it’s not your fault and, it’s inevitable. The reason is that, these companies have swiss cheese algorithms. Sure, they may turn down 30 to 50 percent of applications, but it’s a total guessing game. They have little if any idea what they’re getting.
And when the consumers they approve either commit a fraud or default, guess who’s blamed, even if you have nothing to do with it. You got it. Just like that, you’re searching for a new program.
Let me back track a little and say even though you’re not to blame for a consumer with bad intentions, your business model could lead to your demise and that’s a decision you can control.
Here’s what I mean.
Have you ever heard of the expression, garbage in-garbage out? Well, that’s what you’re doing to your store. By leaning on these products, you are hooking people that will lead to your demise. People requiring a no credit product are mostly good, well intentioned individuals. Young people just starting out are a good example. Also, many people have had a rough patch and no longer can qualify for traditional lenders. But, if 10% of these consumers default early or commit a fraud, your account is in jeopardy.
Even people with good intentions get into trouble with these products. Though it’s a lease, the effective interest rate typically approaches one hundred percent, and sometimes more. And the term is typically 12 months. That’s a formula for a high, unmanageable payment. Let’s face it, the excitement of that new couch or mattress will wear off quickly as will the motivation to make that payment. Particularly if that person’s credit is already bad (and most of these programs don’t report to the credit bureaus). The bottom line is that your back is up against the wall from the moment you make that sale.
This is an example of being caught between a rock and a hard place. You need the revenue that results from this business but you are placing your business in jeopardy.
I have good news and bad news.
The good news is that I have a solution that will increase your revenue and bring in the customers you want. The kind of customers that will help grow your business and come back again-and-again.
The bad news is that you will still get defaults and fraud cases, if you continue using no credit lease products and we can’t guarantee that you won’t be cancelled, but your chances of not getting cancelled will be greatly improved with our Flexxbuy formula..
Now, the large box stores offer these products as well so how do they get away with it?
Typically, they don’t lead with their no credit product. They lead with a traditional loan. “Buy this living room set for a low monthly payment of $______.” Perhaps they will mention the no credit product or allude to it, but the lead is in the traditional lender.
This strategy assures a cross section of customers. Those with good credit and those that “think” they have good credit. And they will have an answer for most of them.
The challenge is, these traditional lenders are usually not interested in working with the small to medium size stores. They want to fish in the deep waters. That leaves most businesses scrambling for the falloff, and that’s not a good customer to use as your base.
It’s almost not fair. The big guy has the deep marketing budgets and every lender and company under the sun knocking down their door to offer them solutions for their customers.
Fortunately, we’ve developed a multi-lender credit based platform (we have lenders that can approve individuals with credit scores as low as 550) that any size business can utilize for their customer. The interest rates will vary widely, depending on credit, but the borrowers with good credit will likely receive an offer to their liking.
Here’s the truth. It is likely that only 30 to 40 percent of prospective customers will get approved for these low interest rate credit based products. The approval rate is lower with lenders like, Synchrony and Wells Fargo, offering services to the big box stores. For the rest, the no credit or sub-prime option will look a lot better once the customer knows their credit is not good enough to qualify. This strategy makes a great one-two punch.
Businesses that market all credit type of products will get all credit type of consumers. It’s important to let the community know that you have solutions, regardless of credit. These days, consumers either know their credit score or have sized themselves up. They have expectations. You’ll never be able to satisfy every prospective customer, but having a dual strategy will capture most of them. Also, it will give the consumers with more established credit better options. And believe it or not, it will present the no credit company with a better cross section of lessees.
With these products, you can now compete and bring in every type of customer. Driving a message that only appeals to no credit and poor credit individuals is a formula for failure. Diversification will keep you alive and thriving for years to come.
Bob Lovinger is the President of Flexxbuy, a leading US broker in the area of customer financing. Flexxbuy features a number of multi-lender platforms that can accommodate most business verticals and their customers covering a wide array of credit profiles.