To define in simple terms, retail lending is the process of giving loan to people as opposed to say an institution. In the typical sense retail lending pertains to things like home loans etc where banks assess the capabilities of an individual and on the basis of that offer loans. But in saying so, in a more broad sense it can also pertain to lending by businesses to consumers in the form of financing options so that they can purchase the goods that they want and pay over a period of time.
Most retailers these days offer the facility of retail lending and it the reason for this boils down to the fact that this helps them to retain and convert consumers who otherwise cannot afford to buy the goods on cash into actual sales. By providing the lending and financing options, stores and retail companies allow the consumer to have the product and by making a down payment and then paying in installments, the consumers too are a happy lot.
Talking about the benefits or effects of retail lending on businesses, the point to note is that by offering their customers the facility of paying in parts, the retailer ends up getting a sale and this automatically leads to an increase in profit. Another advantage this offers is that because the retailers end up selling stuff their stock is always on the move and this makes way for fresh arrivals.
On the end of the retailers, their risk factor is mostly covered. The lending process follows stringent guidelines and the credit rating of the consumer is thoroughly checked before a loan is approved. This minimizes risk considerably and because in addition to this there is interest charged on the credit amount the retailers ends up safeguarding their interest.
Sometimes retailers tend to create partnerships with retail finance firms who provide a backing in terms of providing funding as well as doing a thorough background check of the borrower. These retail finance firms then take a cut on the profits from the retailer.
Ideally speaking, retail lending creates a win-win situation for all the parties involved. The consumer is happy because they get the product they want, the retailer is able to drive sales and profit and the financial institution involved is able to make a profit just by providing support.
There is a reason why retail lending is thriving as a finance option the retail industry as it tends to affect the overall profit margin and on a larger scale even impact the industry, not just the business.