Sell ​​in installments without interest and with interest

With today’s inflation and the difficulty for Argentines to fund themselves, the use of installment payments in Argentina increased.

Consumers pay both in installments for buying products that represent a long-term investment and for buying more everyday products. They usually use interest-free installments, but they also use this resource by paying an interest rate when it’s convenient.

Benefits of paying in installments

With the explosion of installment payments, offering interest-free and interest-free installments to customers is a way to encourage consumption for a business and make shopping at your online store easier.

Installment sales allow the merchant to receive the full sale amount within 48 business hours. For its part, the bank will have to wait 2, 3, 6 or even 12 months to receive the user’s money.

What does the bank get from companies?

The company has to pay the bank interest on the advance of the sale made in installments, as if it were a bank loan. This happens because the bank advances the money to the merchant, it is deposited within 48 hours, so you don’t have to wait for the customer 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 contingent plans, the higher the TNA and the higher the amount the merchant has to pay.

For example, Visa’s TNA ranges from 37% to 43%, depending on the installment plan you choose.

This means that for every transaction that is paid in installments via the credit card, the company has to pay a 3% fee on the one hand and the interest that we mentioned in the previous paragraph on the other.

How can you avoid damaging the net amount of your sale?

Actually there is one coefficient system calculated by the bank, which allows companies to pass on the cost of interest to the customer. This coefficient ensures that the company collects 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.

The customer is then billed a higher amount and the coefficient is calculated in such a way that, after deduction of duty and interest, the trader charges exactly as if he had made the sale in a single payment.

Coefficient tables and TNA can be found on each credit card administrator’s website.

example

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

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

Total sale amount = price of a pair of socks ($100)

Net Receivable = Price of Pair of Socks ($100) – Inches (3%) = $97

– Calculation of the net amount to be collected for installment sales

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

Net Receivable = Total Sale ($106.02) – Tariff ($3) – Interest ($6.02**) = $97

* This is the Visa coefficient for payment in 3 installments on the day the article is published

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

The case of installments without interest

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

For the bank or card, it’s a way of building customer loyalty; and for companies, they represent the best option since they allow them to offer their customers installment payments without having to apply a coefficient, as in the case of a classic installment sale.

However, due to the devaluation of the peso, interest rate hikes and other government economic measures, banks have started to tighten credit and interest-free installment plans are becoming increasingly difficult to sustain.

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

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