Characteristics of Consumer Financing and How It Works
Consumer financing services recently can be found easily everywhere, starting from department stores to all the way to the traditional markets. The high demand of middle-lower class of Indonesian society toward loans to purchase various necessity goods to support their livelihood helps consumer financing to grow.
Nonetheless, there are still many people who do not understand what consumer financing is and how it works. For a more detailed information, following is a complete explanation about consumer financing in Indonesia.
Definition of consumer financing
Shortly, consumer financing is all kind of funding activities catering consumers who want to buy merchandise with instalment system. Usually, people who choose consumer financing are not able to buy a merchandise with cash or through credit card.
Generally, this consumer financing service is considered as a credit. Consumer financing itself is considered to be safe and operated within the boundaries of the law. Consumers are provided with convenience through this service because of a simpler requirement and a faster process, sometimes without a collateral.
There are several merchandises which are usually bought through the consumer financing, from automotive to household needs. Some examples are motorized vehicles, electronic appliances, home and office furniture, farming equipment, tools, and musical instruments
Is consumer financing safe?
The term credit or loan is largely avoided. This is because many people are afraid to get tangled in loan and get a visit by a loan shark. However, consumer financing is actually a safer alternative for you. As explained, consumer financing itself is regulated by Indonesian law through a directive by the Ministry of Finance No. 448/KMK.017/2000 regarding financing companies.
Moreover, consumer financing is also a system without any collateral and the payment can be paid in a monthly basis depends on the consumer’s income. Further, there is no sudden increase in the monthly payment.
Consumer financing service involves 3 parties: the consumer financing company as a loan provider, the seller as a merchandise provider, and the consumer as a loan recipient. There are no other parties involved in this event.
Difference with the financial lease
General understanding which usually is misunderstood by many people is that consumer financing is the same with financial lease. This is not true, although the two share similarities. The underlying difference between the two is the target client.
Consumer financing companies target individual clients, which is Indonesian people who want to buy their necessity. In the other hand, finance lease companies target companies or other organizations as their client. Finance lease itself funds their client to purchase equipment or tools for their production process, unlike consumer financing.
Chosen based on credit score
Then, how can a consumer financing company can determine which client deserve a loan? The answer is by utilizing the credit score. For those who don’t know, credit score is an evaluation system based on personal information and the client’s credit history.
By applying credit score system, a multifinance company that provide consumer financing can easily and hastily withdraw the loan. Of course, this benefit both the client and the company, remembering that credit score also reduces operational cost of a business. If a client is proved to be tardy in their credit payment, then their credit score will be low.
The smoothness of consumer financing is an important pillar for a multinancing company that operates in this industry. In operating a successful business, a sophisticated core system is also required.
CONFINS is the right solution which have been used by various multifinance companies in Indonesia. Complete with seamless and high performing features and modules, you can entrust your business operational to CONFINS