Product financing is a loan that helps you to purchase a specific product – for example, that new smartphone you’ve been looking at or the fridge you’ve been wanting to replace.

Since it’s a loan, you’re charged interest, usually at a monthly rate. (You might have also heard this referred to as hire purchase, or a pay later service.)

With product financing, you can get the product now and pay it off later in bits.

What’s the difference between product financing and mobile credit?

If you get product financing, you only borrow the amount you need for the product you’re buying and the loan is paid directly to the retailer you’re purchasing from. Since you don’t get cash, you won’t have the temptation of spending the loan amount on something else, as well as saving you transaction or withdrawal costs to pay the retailer.

With mobile credit, you get cash/M-PESA directly from the lender to spend however you like. However, you might feel like you have to borrow more than you need in order to make the most of your credit limit, meaning that you will end up paying more interest at the end.

Here’s where it sometimes gets confusing…for some services, like Aspira, you can apply for product financing through a mobile app with a similar process to mobile credit. We try to make it as simple as possible to get what you need by providing you with a mobile app to apply and monitor your loans. However, we do not give out cash/M-PESA.

What about product financing versus lay-by?

Both product financing and lay-by let you choose a product, put down a deposit (usually 20% minimum) and select a plan to pay off the product over several months.

However, with lay-by you will only receive the product when you have fully paid off the full product price (plus any other charges). If you decide partway that you no longer want to purchase the product, you will have to ask for a refund. With product financing you will get the phone, TV, fridge or other product that you need as soon as you have been approved and paid a deposit – instead of waiting up to a year. For this extra convenience, interest is charged.

What about product financing versus hire purchase?

Product financing and hire purchase operate the same way, however you should check where the company will allow you to purchase from – is it from their own inventory or other retailers?

So how should you make your next purchase?

As with any financial product, you should look at your current situation and decide what’s best for you. You should consider your income, your average expenses (here’s how to figure them out), what you need and how soon you need it. You should also evaluate whether you can afford the service by asking what kind of fees and interest will apply, how flexible it is and what happens if you don’t pay in time.

If you would like to find out more about Aspira, see how it works or call us on 0777 900 077.