Global عربي
KSA عربي
Global عربي
Retail financing includes a host financial service that allows shoppers to buy their goods and services either through credit or structured payment plans instead of paying the full price up front.
Retail financing has become a crucial component of the modern economy, bridging the gap between what the consumer wants and their inability to immediately pay for these goods and services.
For businesses themselves, retail financing allows them to tap into customer bases that would have avoided their products entirely, boosting revenues.
Meanwhile, an entire industry has grown around retail financing as part of the broader rise in consumer finance, whether it is through fintech platforms or traditional banks and everything in between.
Retail financing provides the user credit-based payment options offered at the point of sale, allowing them to purchase products or services over time, as opposed to the traditional way of doing things,
which to pay the total cost immediately. Through retail financing, the buyer makes installment payments, often with interest.
Retail financing can be provided directly by the retailer or through third-party financial institutions or via credit cards, financing apps and other fintech platforms.
Retailers often partner with banks or financial institutions to offer these services, enabling buyers to spread out their payments and potentially buy more than they could have otherwise.
1- The typical process will see the customer pick a financing option when they get to the counter or point of sale (either online or in the physical store).
2- The financing application is filled with approvals typically being instant.
3- The buyer approves the financing plan that includes: The loan amount, the interest on the loan, repayment schedule and any fees associated with the service provider.
4- The lender either pays the retailer or the store grants the loan. In the case of the former, the customer pays the lender over the agreed upon payment schedule.
Retail financing comes in many forms. These usually are based around the product, retailer, or lender, in addition to their terms of service. Here are the most common types:
Paying in installments with credit is probably the most common type of retail financing option out there. It is also one of the oldest, offered by stores for centuries.
These loans allow the buyer to spread out the cost of their purchase over a period of time into fixed installment payments. the loans can be interest-bearing or offered at 0% as a promotional tool.
Read more about: Are Installments Halal? Exploring Different Scenarios.
Some retailers offer branded credit cards that can only be used at their stores or at affiliated brands. These may sometimes include rewards and exclusive discounts. Interest rates typical can surge if interest payments aren’t made on time.
At the same time, a number of financial institutions and other third-party companies have tied retail financing options and benefits to their own credit cards, including discounts when using your bank credit card at select stores.
They also offer bonus points that are collected by using the card day-to-day and can be redeemed at select vendors.
Read more about: Are Credit Cards Inherently Haram?
Another common form of retail financing is BNPL, which has seen substantial growth over the past 20 years or so.
These can be offered either by a retailer or a third-party financial app. These allow the consumer to defer the payment for their item or service to a later date.
Sometime, these offer the customer a window of around 3-6 weeks where they are able to pay for their product at zero interest. interest charges will be tacked on if the loan is extended beyond the grace period.
Read more about: Is Buy Now Pay Later (BNPL) Halal?
A staple in the electronics industry, leasing allows the consumer to pay for the use of a product for an extended period of time with an option to eventually buy the product. It involves usually a very low up-front cost but can be more expensive over time.
These are plans that can be applied to most of the options on this list, whereby interest is foregone by the loan provider if the payment is made in full over a particular window. Failure to pay by the end of the window can result backdated or retroactive interest.
Many Muslim consumers and retailers will not want to charge or pay interest as it is forbidden in Islam. That said, Islamic finance contracts provide a host of funding options that do not involve interest. These include Murabaha, Tawaruq, Ijara and Musharaka. Some Islamic banks and other vendors have even begun issuing Shariah-compliant credit cards.
Disclamer:
This post is for educational purposes only, and does not constitute investment advice or a solicitation to take any financial action. It should not be relied upon when making investment or financing decisions.
