To offer financing to customers, you partner with a third-party lending platform that approves applicants, funds the purchase, and collects payments, while you handle any state license your role in the transaction requires and make sure the federal disclosure, advertising, and anti-discrimination rules are met at your checkout. The lender does the lending work. You carry the compliance obligations that attach to the storefront where credit is offered, and in some structures you are legally the creditor even when a finance company buys the contract from you afterward.
What follows is the setup in the order it actually happens: pick the product, get approved as a merchant, confirm your license status, and build the disclosures, advertising, and operations around what the law requires.
Pick the Financing Structure That Fits What You Sell
Four structures dominate consumer financing, and the right one depends on ticket size, who your customers are, and how much complexity you want in the ongoing relationship.
Point-of-sale installment loans are fixed-term loans — commonly 6, 12, or 24 months — with equal payments until the balance is paid off. The lender pays you upfront minus a merchant fee, and the customer repays the lender directly. These work well for higher-ticket purchases where predictable monthly payments matter.
Revolving lines of credit function like a store-branded credit card. The customer gets a credit limit and reuses it across purchases as they pay the balance down. This encourages repeat visits because the available credit is already there, but account management is ongoing and the customer relationship is more complex.
Lease-to-own keeps the item in the financing provider’s ownership until the customer completes payments. A portion of each payment goes toward the eventual purchase price. This often serves customers with lower credit scores who would not qualify for a traditional loan, and most agreements let the customer return the item and walk away instead of owing the full balance.
Buy Now, Pay Later (BNPL) is typically four or fewer installments with no interest or finance charges. Many BNPL lenders take about 25 percent upfront and auto-debit the rest from the customer’s bank account or card over the following weeks.1Office of the Comptroller of the Currency. Retail Lending: Risk Management of Buy Now, Pay Later Lending BNPL providers usually run soft credit inquiries rather than hard pulls. The Consumer Financial Protection Bureau classified BNPL lenders that issue digital user accounts as “card issuers” under Regulation Z, which means those providers must offer billing dispute rights and refund protections similar to traditional credit cards.2Federal Register. Truth in Lending Regulation Z – Use of Digital User Accounts To Access Buy Now Pay Later Loans If you partner with a BNPL provider, know in advance that returns and disputes can be messy because the short loan term may expire before the issue is resolved.
Get Approved as a Merchant
Third-party financing providers vet your business before enabling you as a merchant. The documentation is routine; incomplete applications are the usual reason for delays.
You will need your Employer Identification Number, which the IRS issues for federal tax identification.3Internal Revenue Service. Employer Identification Number Expect to provide at least two years of profit-and-loss statements and balance sheets, plus a voided check or bank letter for fund transfers. Most platforms want to see six to twelve months of active business history before approving a merchant account, and they use your prior revenue and average transaction size to set the credit limits your customers can access.
Smaller businesses and sole proprietors should expect a personal guarantee. That makes you personally responsible for certain obligations under the merchant agreement if the business defaults. Terms vary by lender, but the requirement is common. Plan for it.
Do You Need a State License?
This is where businesses get tripped up. In most states, offering installment payments or revolving credit to consumers for personal purchases triggers a licensing requirement, even when a third-party lender actually funds the loan. The license goes by different names in different states — “retail installment seller,” “sales finance company,” or “consumer lender” — but the obligation is substantively the same.
Whether you personally need the license turns on how the financing relationship is structured. If the third-party provider is the creditor and you are referring customers to them, the provider holds the lending license and you may be exempt. If the financing agreement is between you and the customer, meaning you are technically the seller extending credit even if you later assign the contract to a finance company, most states will require you to be licensed. The distinction between referring credit and originating it matters enormously, and getting it wrong means operating without the required authorization.
Application fees, renewal costs, and bonding requirements differ by state. Some states exempt certain industries, such as motor vehicle dealers regulated under separate statutes. Before you sign with a financing platform, get the provider to confirm in writing whether its structure requires you to hold a state license, then verify that answer with your state’s financial regulatory agency.
Federal Disclosures Under the Truth in Lending Act
The Truth in Lending Act requires anyone facilitating consumer credit to disclose cost information in a standardized format so consumers can compare offers.4Office of the Law Revision Counsel. 15 USC 1601 – Congressional Findings and Declaration of Purpose Regulation Z spells out what has to be shown and when.
For every closed-end credit transaction, such as an installment loan, the creditor must disclose the following in writing before the customer finalizes the agreement:5Consumer Financial Protection Bureau. Section 1026.18 Content of Disclosures
- The Annual Percentage Rate, described to the consumer as “the cost of your credit as a yearly rate.”
- The finance charge, meaning the total dollar cost of the credit over the life of the loan, including interest, service charges, loan fees, and any required insurance premiums protecting the lender against default.6Office of the Law Revision Counsel. 15 USC 1605 – Determination of Finance Charge
- The amount financed, which is the actual dollar amount of credit provided after subtracting any down payment and prepaid finance charges.
- The total of payments, meaning the cumulative amount the customer will have paid once all scheduled payments are made.
- The payment schedule — number, amount, and timing of each payment.
The APR and finance charge must appear more prominently than the other terms, and the disclosures must be delivered before the transaction is finalized.7eCFR. 12 CFR 1026.17 – General Disclosure Requirements When you work with a third-party platform, the software typically generates these disclosures for you. If you are structurally the creditor in the transaction, legal responsibility for accurate disclosures still falls on you.
TILA violations carry real exposure. A consumer who receives inadequate disclosures can sue for actual damages plus statutory damages. For a standard closed-end retail installment loan not secured by real property, the statutory penalty is twice the finance charge on the transaction. For open-end credit plans like store credit cards, statutory damages range from $500 to $5,000 per violation.8Office of the Law Revision Counsel. 15 USC 1640 – Civil Liability The creditor also typically pays the consumer’s attorney fees, which is what keeps these suits economically viable on small transactions.
Advertising Rules You Have to Follow
Regulation Z reaches your marketing, not just your loan paperwork. If an advertisement for a financed purchase mentions certain trigger terms, you must include a full set of credit disclosures in that same ad. The trigger terms are:9eCFR. 12 CFR 1026.24 – Advertising
- The amount or percentage of any down payment
- The number of payments or the repayment period
- The amount of any payment
- The amount of any finance charge
A sign that says “New sofas from $49/month!” triggers the full disclosure requirement. You would also need to state the down payment, repayment terms, and APR in the same advertisement. A general statement like “Financing available” does not trigger these requirements because it does not quote a specific credit term. The rule applies to every channel — website banners, email, in-store signage, and social media posts all count as advertisements under Regulation Z.
Anti-Discrimination Rules Under the Equal Credit Opportunity Act
Any business involved in a credit decision, including as the storefront where applications happen, must comply with the Equal Credit Opportunity Act. ECOA makes it illegal to discriminate against a credit applicant based on race, color, religion, national origin, sex, marital status, or age, or because the applicant’s income comes from a public assistance program.10Office of the Law Revision Counsel. 15 USC 1691 – Scope of Prohibition
The obligation reaches further than not refusing applicants. You cannot say or do anything that would discourage someone from applying based on a protected characteristic, and that includes how sales staff talk about the financing option and which customers they offer it to.11eCFR. 12 CFR Part 1002 – Equal Credit Opportunity Act, Regulation B If financing is available, present it consistently to every customer, not selectively based on a salesperson’s assumptions about who will qualify.
When a credit application is denied, the creditor must send a written adverse action notice within 30 days explaining the reasons. In most third-party arrangements the lending platform handles this automatically. If your business is structured as the creditor, you handle it. Records tied to credit applications — the application, the information used to evaluate it, and the notice of action taken — must be retained for 25 months.11eCFR. 12 CFR Part 1002 – Equal Credit Opportunity Act, Regulation B
Unfair and Deceptive Practices
Separate from TILA and ECOA, the Federal Trade Commission Act prohibits unfair or deceptive acts or practices in commerce.12Office of the Law Revision Counsel. 15 USC 45 – Unfair Methods of Competition Unlawful A practice is unfair if it causes substantial injury to consumers that they cannot reasonably avoid, and the injury is not outweighed by benefits to consumers or competition. In financing, that means misleading customers about the cost of credit, burying fees in fine print, or steering people into financing products they do not need can create liability on their own, independent of any TILA violation.
What Financing Costs You
Offering financing is not free. Third-party providers charge a merchant discount fee on each financed transaction, similar to credit card processing fees but typically higher. The percentage depends on the provider, the product, the repayment term, and whether you are offering a promotional rate such as “0% APR for 12 months.” Promotional offers shift the interest cost from the customer to the merchant, so expect a bigger fee on those.
Some BNPL providers charge merchants in the range of 2 to 8 percent per transaction. Longer-term installment programs with deferred-interest promotions can cost significantly more. Negotiate before signing. Some providers also charge monthly platform fees, integration fees, or chargeback fees. Build all of this into your pricing. Businesses that bolt financing onto existing prices often watch merchant fees quietly erode profitability on high-ticket sales.
Integrating Financing at Checkout
Once a provider approves you, integration depends on where you sell.
For e-commerce, you install a plugin or connect through an API that adds the financing option alongside your other payment methods at checkout. The customer selects financing, enters their information, and gets a credit decision in seconds. If approved, they sign the loan agreement digitally and complete the purchase. Funds transfer to your bank account, usually within one to three business days by ACH.
Brick-and-mortar follows a similar flow, with the application happening on a dedicated tablet, a terminal integrated into your POS, or the customer’s phone through a QR code. The operational point is the same across channels: the lending platform makes the credit decision, generates the disclosures, and handles the agreement. Staff present the option and help the customer navigate the interface. They do not make credit judgments and they do not promise approval.
Reconcile financed transactions against your bank deposits to catch processing errors early. Track approval rates, too. Low approval rates may signal a mismatch between your customer base and the provider’s underwriting, which can mean a different financing partner would serve you better.
Handling Returns on Financed Purchases
Returns on financed purchases are more complicated than standard refunds. You cannot simply hand back cash or issue store credit, because the loan has to be unwound through the financing provider’s system. The standard process requires you to notify the provider, which cancels or adjusts the loan and credits the customer’s account.
Your merchant agreement spells out the exact refund procedure, including how quickly you must process the return and whether the provider claws back funds previously deposited to your account. Learn this process before your first financed sale, not after your first return. BNPL creates particular friction because the short repayment window means the customer may have made several payments before the return is processed, requiring the lender to issue partial refunds across multiple payment methods.
Make sure your written return policy addresses financed purchases explicitly, and make sure staff know which returns they can handle at the register versus which ones require coordination with the lending partner. Mishandled returns on financed sales are a common source of customer complaints and chargeback disputes.