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How Point-of-Sale Financing Works

 


Point-of-sale financing is a popular banking method through which retailers receive funds from their customers at the point of sale. Unlike most methods, this form of lending typically requires fewer documents and allows the vendor to make up interest on their loans in an instant when they pay back.

These advantages encourage many big-ticket items to be financed with this method, such as luxury cars and computers. In the United States, points-of-sale financing has become one of the most popular ways for consumers to finance purchases in recent years.

This article will examine each step of this process and discuss how it works.

Example: The Daily Grind

Suppose that you decide to make a purchase with points of sale financing. The following is an example of how a transaction may occur at the point of sale and what happens once the transaction completes.

The steps for this transaction are as follows:

1. You ask for financing on the purchase you are making. This occurs when you purchase a big-ticket item such as a computer or car.

2. You sign an agreement for the financing. This agreement will detail information such as the amount of money you are borrowing and the length of time that you have to pay it back. This is not to be confused with the original contract that is signed at the time of purchase.

3. You give your money to the store owner, who gives it to his or her banker (a factoring company).

4. The banker gives the money to you; he or she is able to do this since the merchant/store owner is required to pay back the money by a specific date.

5. You make regular payments, usually monthly, on your loan until you have paid it back in full. This includes making interest in neglecting any penalties that may be imposed during that time period.

6. You receive your purchase once the payment has been completed.

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