How does shopping on credit work?

When making a significant purchase, whether that be a new sofa, a piece of jewellery, or investing in a kitchen redesign, one of the main considerations is the cost. Spending hundreds or even thousands of pounds upfront might not be possible – which is where retail finance comes in. This allows you to spread the cost of your product over time or even buy what you want now and pay for it later.

Using credit to buy the things you love

Most of us have some experience of buying on credit. In fact, according to Money.co.uk, 83% of Brits use some form of credit or loan product.

Borrowing money allows you to get your hands on the things you want sooner but pay for them over time. Ideal if you don’t have a large upfront budget, would prefer to conserve your savings or simply find it more convenient to spread the cost.

You might even decide to extend your budget if you can spread the cost over time. Maybe you’ll treat yourself to that upgraded model, after all!

How does retail finance work?

Retailers partner with a finance provider, such as Novuna Personal Finance, to offer credit options to customers like you. Unlike a loan, where the money you borrow is deposited straight into your bank account, the retailer is paid directly by the finance company and you’ll then make your repayments to that provider. Your finance agreement is with the lender, not the retailer.

Here’s how it works:

1. You choose the product you want

Retail finance is available on all sorts of products, from boilers to bikes, armchairs to artwork and hot tubs to home improvements. You’ll also find finance on offer both in-store and online.

2. Ask about the finance options available

Find out about the finance options on offer before you shop! This will help you to shop with your borrowing budget in mind, which can be more than the amount you can afford outright.

The most common types of retail finance include:

• Interest bearing finance – similar to a traditional loan, you’ll make a series of fixed-rate monthly repayments over a set timeframe. Bear in mind that paying using interest bearing credit will be more expensive in total than buying outright, as you’ll have to repay the borrowing amount plus interest.
• Interest free finance – you’ll spread the cost over a set term, but you won’t pay a penny more than you would if you had bought the product outright.
• Buy now pay later – the clue’s in the name with this one. You’ll walk away with the product you want now and pay for it later down the line (up to a year later). If you settle in full during the deferral period, you won’t have to pay any interest (though a small fee may apply).

Lots of factors will be taken into account when deciding on your finance package. For example, you might have the option to choose how long you want to borrow for. You may also be required to pay a deposit towards the goods or services you’re buying, or choose to pay an optional deposit to bring the total borrowing amount down.

3. Fill out an application form and get your instant decision

You can apply for finance online or in-store. Our application takes just a few minutes to fill out and you’ll get an instant decision. There’s no paperwork to worry about either – if you do want to go ahead, you’ll be able to e-sign the agreement then and there.

4. Start making your repayments

You’ll start making repayments around 30 days after you receive the goods or services. Your repayments will cover the money you borrowed plus any interest.

At this point you’ll also be able to manage your finance agreement online or via the Novuna Personal Finance app. Track payments, update your information or settle early at the touch of a button.

When to use retail finance

People use point of sale credit for all sorts of reasons. It’s most commonly used to allow you to access products that might otherwise be tricky to afford upfront. However, as interest free finance doesn’t cost you a penny more than buying outright, many customers opt to shop on credit simply because it’s more convenient.

Here are just some of the main reasons customers opt to shop on credit.

1. Flexible finance options

Shops often offer a range of retail finance options, including finance with interest, 0% APR finance and buy now pay later. This gives you a great level of flexibility when deciding which option to go for.

Once you know what product you want and how much it’ll cost, you’ll be able to ask in-store or use a loan calculator on the retailer’s website to work out the best option for you based on total cost of borrowing or your monthly budget.

2. Simplicity

Finance application systems are integrated into the retailers’ checkout process so, if you have your heart set on a product from a specific retailer, it’s quick and simple to apply. The application only takes a few minutes and you’ll get an instant decision.

What’s more, many of our retailers also offer soft search so you’ll be able to find out your eligibility for finance with no impact on your credit score. This gives you even more confidence at the checkout.

3. Borrowing amount

Retailers offer finance options that are most suitable for the products they sell. You might not be able to access the same amount elsewhere.

For example, credit cards often have a maximum credit limit and loans also have both minimum and maximum borrowing amounts. Retail finance offers the unique chance to apply for the cost of the products on your wish list.

4. Repayment periods

Retailers may offer the option to spread the cost over a longer period, which could bring your monthly repayments down.

Different retailers will offer different repayment terms. Terms will also vary depending on the product you choose and its cost – plus which retail finance option you opt for.

For example, you may find you’ll be able to borrow over a longer period of time if you choose an interest bearing retail finance product compared to an interest free option.

5. Interest rates

Retail finance may carry a more favourable interest rate compared to other borrowing options as retailers seek to provide the best possible shopping experience for their customers. This means you could have access to the most affordable borrowing options, such as interest free finance.

6. Building credit

Taking out finance on a smaller purchase can be a good tool for building your credit score if used correctly. Provided you make all repayments on time and prove yourself to be a great customer, using credit responsibly can support future applications as lenders can see you’ve got a good track record of paying off your debt.

One thing to remember, though – always compare your finance options before making a decision. Borrowing money is a big commitment and it’s so important the option you choose suits your financial circumstances.

It’s also important to make sure you can comfortably afford the repayments before applying for credit, as late or missed payments could negatively impact your credit score.

Where to find a retailer’s finance options

Retailers know how important finance is to their customers, so it’s usually pretty clear if a retailer does offer credit. You’ll find the options listed on a retailer’s online homepage or product pages as well as at the checkout, and there should be plenty of stickers and hangtags promoting the finance options in-store too.

Check out our retail finance FAQs

Learn more about retail finance and how it works by flicking through our helpful FAQs.