Sell ​​in installments without interest and with interest

With today’s level of inflation and the difficulty for Argentines to finance themselves, the use of installment payments was growing in Argentina.

Consumers make payments in installments both for the purchase of products that represent a long-term investment and for the purchase of more everyday products. They usually take advantage of interest-free installments, but they also use this resource by paying an interest percentage if it is convenient.

Advantages of offering payment in installments

Faced with the explosion of the use of payment in installments, offering customers the possibility of paying in installments without interest and with interest is a way to encourage consumption for a business and facilitate purchases from your online store.

Selling in installments allows the merchant to receive the full amount of the sale within 48 business hours. The bank, for its part, will have to wait 2, 3, 6 or even 12 months to receive the user’s money.

What does the bank receive from businesses?

The business will have to pay interest to the bank for the advance of the sale made in installments, as if it were a bank loan. This happens because the bank will be advancing the money to the merchant, it will be deposited in 48 hours, so you will not have to wait for the client to pay each installment month after month.

The amount of interest depends on the type of credit card and It is calculated according to the nominal annual rate (TNA).

The more quota plans, the higher the TNA, and the higher the amount the merchant has to pay.

Visa’s TNA, for example, ranges between 37% and 43%, depending on the installment plan chosen.

This means that for each transaction made through the credit card paid in installments, the business has to pay, on the one hand, a 3% fee and, on the other hand, the interest that we mentioned in the previous paragraph.

How to avoid harming the net amount of your sale?

Actually, there is a coefficient system calculated by the bank that allows businesses to transfer the cost of interest to the customer. This coefficient ensures the business to collect the same net amount as if the sale had been made in a single payment.

Taking into account the TNA and the number of installment plans, a coefficient is calculated that is applied to the initial amount of the purchase.

A higher amount is then billed to the customer and the coefficient is calculated in such a way that when the duty and interest are deducted, the merchant charges exactly the same as if he had made the sale in a single payment.

The tables of coefficients and the TNA can be found on the website of the administrators of each credit card.

Example

A pair of socks costs $100 and a customer wants to pay for it in 3 installments.

– Calculation of the net amount to be collected for the sale in one payment

Total sale amount = Price of pair of socks ($100)

Net receivable = Price of the pair of socks ($100) – Duty (3%) = $97

– Calculation of the net amount to be collected for the sale in installments

Total amount of the sale = Price of the pair of socks ($100) x coefficient ( 1.0602*) = $106.02

Net receivable = Total amount of the sale ($106.02) – Tariff ($3) – Interest ($6.02**) = $97

* It is the visa coefficient for payment in 3 installments on the day of publication of the article

** Interest is calculated based on the TNA and the number of installment plans.

The case of installments without interest

The possibility of proposing payment in installments without interest is thanks to a commercial offer that a bank or credit card proposes to its users for the purchase in a certain store.

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For the bank or the card, it is a way to build customer loyalty; and, for businesses, they represent the best option because they allow them to offer their customers to pay in installments without having to apply any coefficient, as in the case of a classic installment sale.

However, due to the devaluation of the peso, the rise in rates and other government economic measures, banks began to tighten credit, and interest-free installment plans are becoming difficult to sustain.

And, do you offer payment options in installments in your e-commerce?

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