Retailers that sell durable goods and provide services know that offering financing to their customers helps them close more sales. But in the current interest rate environment, customers’ ability to be approved for primary financing is not a given.

“Banks and other primary lenders are tightening their underwriting,” said Rolando De Gracia, chief commercial officer of Concora Credit. “If you’re a retailer selling durable goods and you have a primary-lending relationship, you will be seeing lower approval rates from your primary lender.”

Lower approval rates from primary lenders can translate into more lost sales for retailers. Defaulting denied customers to tertiary buy-now-pay-later (BNPL) or lease-to-own (LTO) financing routes is an option for retailers, but both routes are expensive for customers — which can compromise retailers’ potential to drive customer loyalty. 

By looking beyond primary and tertiary lending, however, retailers can meet the financing needs of more shoppers. Embracing secondary-credit offers enables retailers to offer credit to customers who have less-than-perfect credit, otherwise known as nonprime consumers. 

Since nonprime credit providers can take on higher-risk individuals, the retailers that partner with them can approve more customers and close more sales than they can when working only with primary and tertiary lenders.

Offer a valuable option

For customers with less-than-perfect credit, “the worst [shopping] scenario is being declined for financing and leaving without the item,” De Gracia said. But this scenario is all too common for customers who can’t meet primary-financing requirements and find BNPL or LTO options undesirable. 

Partnering with a second-look provider specializing in less-than-perfect credit allows retailers to keep more customers from finding themselves in this uncomfortable position.

“The key to embracing credit [for retailers] is to make sure that you can approve the customers that walk through your door,” De Gracia said. “The reality for customers with less-than-perfect credit is that they are aware of their credit situation, so they understand why they are being declined for primary financing. Offering secondary financing allows retailers to turn these customers’ negative moments with primary lenders into offers and sales.”

Inform and educate customers

While awareness of second-look financing among nonprime consumers is low, interest in taking advantage of it is significant: In a recent Concora Credit survey of 902 consumers in the nonprime credit score range (defined here as 700 or lower), only 10% reported they recognized the term “second-look financing” — but 50% reported they were somewhat or very willing to accept a future second-look financing offer, and 49% reported they were more likely to apply for a credit card if they knew alternative credit offers were available. 

Making shoppers aware of second-look financing offers is an important first step to driving up credit card application rates (and, ultimately, increasing financing approvals and sales). It is also essential to make customers comfortable applying for those offers.

In the in-store environment, retailers’ sales associates are their best assets in explaining credit options. When nonprime consumers in the Concora Credit survey were asked about their decisions to apply for credit cards, 30% reported that store associates influenced their decision to apply. In fact, store associates were more influential than recommendations from family and friends (18%), online product pages (15%), store signage (11%) and messaging on POS terminals/pin pads (7%).

Knowing that a retailer offers secondary financing can help sales associates feel confident speaking to customers about various credit products, which, in turn, helps customers apply with confidence.

“Educating and empowering salespeople to effectively manage the credit-decline conversation — which might be happening with 30% to 40% of financing applicants today — can become retailers’ best selling tool,” De Gracia said.

Embrace new opportunities

Depending on the types of products they sell and the ways they sell them, retailers may also benefit from using secondary-credit offers as an upselling tool. 

In the furniture industry, for example, “someone may be coming in looking for a couch, but with financing, they can walk out with a living room set,” De Gracia said. “That’s a very material benefit to the retailer.”

Finding ways to unlock material benefits is important for retailers across industries. As retailers pursue initiatives that can help them close sales with more customers in today’s interest rate environment, embracing second-look financing is one way they can turn more negative moments for their customers into positive ones. 

To access more of Concora Credit’s research into nonprime consumers’ behaviors, attitudes and preferences around credit cards, click here.