An installment loan is a form of payment in which the buyer pays the cost of a product or service in installments over a predetermined term. Most often, the installment plan is issued as a bank consumer loan, in which the seller assumes the payment of interest. In other situations, the installment agreement is drawn up directly between the buyer and the seller, without the bank participation.
It also states that such credit relations must be formalized in writing in the format of an agreement indicating the following mandatory points:
- the cost of goods (services);
- the order of payment;
- the term of full debt repayment;
- the size of payments.
The age at which it is possible to buy goods (services) in installments is not legally established. But the age of legal capacity is determined from the age of 18, therefore, the purchase of expensive goods, and even more in installments, is a priori possible only with the onset of majority.
The upper limit of the age limit has not been officially approved either. A seller’s refusal to sell a product (service) in installments to an older buyer is discrimination on the basis of gerontological (age) criteria. Such a refusal can be challenged in court. But as a rule, older people, having received a refusal, do not try to object.
What is the difference between an installment and a bank loan?
Installment loan is a method of purchasing goods, in which payment is not made in full, but in parts, delt in the agreement between the buyer and the seller.
When buying something in installments, you need to return money for the purchase in installments over a certain term. By purchasing goods on credit, you will have to pay interest on the loan for each day of using the loan funds.
Another important difference between an installment loan and a bank loan is securing the obligations of the borrower to the lender. When applying for a loan, very often you can do without collateral altogether. Buying in installments, the product itself will act as a pledge, that is, if you do not pay the required amount on time, the lender can pick up the product, since the right to it has not yet passed to you.
Often, having come to the store, you can see information about the possibility of purchasing goods on the terms of an interest-free loan: “Overpayment – 0%, down payment – 0%, up to 24 months.”
This is the purchase of goods in installments. However, do not flatter yourself about the “Overpayment – 0%”. In fact, you buy goods on credit and at interest. But loans are issued to the bank not to you, but to the seller.
And the interest on the loan has already been invested in the cost of the goods. Therefore, as a rule, the price of goods purchased in installments is higher than the cost of goods purchased for cash. In addition, the purchase of goods in installments is often accompanied by additional payments, which the borrower pays immediately at the time of registration of the installment loan. This can be a one-time commission for registering goods in installments, paying for insurance of the purchased goods, etc.
Advantages and disadvantages of the installment loan
- Use it now, pay later. This is very convenient if the equipment is out of order suddenly. Not everyone can find $100-$200 at once, but it is also impossible to live without a refrigerator or TV set. An installment loan comes to the rescue. You are using the right product without having to pay a large sum.
- No overpayments. This criterion is relevant if you are dealing with fair installments. In this case, this is not a bank loan, you will not be imposed hidden interest and commissions. You can calculate the monthly payment yourself, for this you need to divide the purchase amount by the number of months in installments. Everything is clear and transparent.
- Registration and payment directly in the store. To make such a purchase, you need to make a minimum of effort. Even if you do not have money, you will not need to apply for a credit card or provide documents on income to the bank. You just come to the store to choose equipment, and the manager himself will draw up the necessary documents.
- The price will remain unchanged. Many people doubt whether to take out an installment loan, because they are afraid to overpay too much. But, in fact, you can save a lot on such a purchase. As long as you save money, the cost of household appliances will grow decently. But if you bought a product in installments, you essentially freeze the price.
- You choose the best. When you buy something in installments, you are not so limited on the budget and can afford to buy a quality item that costs a couple hundred more. The difference in price will increase the monthly payment for a year in installments, the equipment will work longer and please you.
Cons of the installment loan:
- You may be missing out on promotions for cash purchases. Stores sometimes offer a cash discount program. As a rule, such promotions do not apply to installments. The loss of profits, as a rule, is not very impressive, but the fact remains.
- Payment for application. When you apply for a loan at a bank, the remuneration for the work of employees is already included in the impressive interest. If the installment plan is fair, then there are no hidden interests or overpayments.