Banks do not only lend through loans. Customers can apply for a credit card or an installment plan on an equal basis with them. Which option to choose depends on the goals and conditions.
Banks will approve not every potential borrower for a loan, but there is the possibility of obtaining an installment plan for almost anyone.
You can take an installment by following this link https://paydaysay.com/bad-credit-installment-loans.php.
What Is The Essence Of Installment Payments?
Wikipedia describes installment payments as paying for goods or services in which the money is not paid in full but in installments.
In this case, the product or service itself is used at once. However, if the store allows payment by installments, it is possible to stretch the payment over several months, using the item for the entire period.
Installment payments imply a loan from the bank but through the intermediary of the store.
The financial institution in this transaction is a “direct buyer” because it transfers the purchase amount directly to the seller.
Although the client becomes the owner of the goods immediately, he gradually returns the loaned amount, but without interest, as in the case of a loan.
However, the banking organization is still left with a profit, as the store pays the interest on the loan.
The advantage for sellers is that the bank allows customers to purchase immediately. If the buyer puts off the goods he likes, he won’t come back for them later.
With installment payments, the bank increases sales, for which it shares some of the profits with the lender. In the end, all parties of the transaction have their benefit:
- The store sold more.
- The bank increased the yield.
- The owner of the goods received the goods in use immediately, not when he collected the necessary amount.
- The goods or services are transferred to the client’s use at once with installment payments.
Interesting fact: Installment loans are a financial help from $100 to more than $10 thousand. The borrower should repay all the sums in 4 to 60 months.
What Exactly Is a Credit?
The collateral guarantees the bank and an insurance policy against financial loss. Even if the borrower fails to repay the loan, the bank can get the amount and the interest back by selling the pledged property.
However, it is often more expensive than the loan amount pledged as collateral. So the borrower is not interested in losing his property, and he will prefer to pay the lender on time.
However, not all clients can get a loan.
Therefore, bank officers always check potential borrowers’ credit history and ratings. The rating is formed based on past loans. If there are no debts and no delinquencies, the bank will likely approve a loan.
But if the credit history is bad and the debts are not closed, the bank will refuse to lend money.
You may correct it by using highly liquid collateral or participating in a credit-recovery program. Even if the loan is approved, it will be at high-interest rates with additional guarantees for the lender.
The Main Differences Between The Installment Plan And The Loan
To determine the difference between a loan and an installment loan, here is a list of differences:
- The installment loan is formed between the seller, the bank, and the buyer. The bank may not appear in the contract but may be included as a third party. The loan relationship is bilateral, meaning it is between the borrower and the banking institution.
- Reasons for registering. Installment payments are made only to purchase a service or product in a store. A loan is a sum of money that the bank gives to the client for various purposes.
- Conditions of execution. When applying for an installment plan, there is no need to fill out an application and wait for the bank’s decision since the collateral is the goods that are bought in installments. If the buyer fails to pay the monthly installments, the buyer can confiscate the purchased goods. The loan requires bank approval and does not require collateral.
- Down payment. With an installment plan, there is usually a down payment, although there may not be one. It varies from 0 to 30% of the total amount owed. In the case of a loan, this concept does not occur, only in the case of a mortgage.
Advantages and Disadvantages of the Installment Plan
Pros:
- No interest. It is the main factor that customers pay attention to when buying goods. But do not forget about the additional mandatory payments: insurance, a one-time fee, or service of the goods in the service center at their own expense.
- Efficiency and ease of installment payments. To connect the installment plan, you do not need to collect many documents or wait for the bank’s decision. Also, employees do not check their history or are more loyal when lending real money.
- The exchange of goods if necessary. In addition, you can request a refund of the money you previously paid for the purchase if, for some reason, the goods do not fit.
Cons:
- When you pay by installments, you need to make an initial payment. It can be up to 30–50% of the total cost of the goods.
- The repayment period is short. The installment plan is given for a maximum of 1-2 years, and you can pay back the credit several times longer.
- Overpriced goods in installments. In this way, you pay off the interest-free loan, and the store shifts its responsibilities to the buyer to pay interest to the bank.
Applying for an Installment Plan
You can make payments by installments only in the store or institution to purchase the product. The seller and the client agree and sign a document specifying the schedule of payments to the bank. Therefore, if the buyer fails to comply with the payment obligations, the store has the right to go to court.
The installment agreement specifies:
- the name of the product to be purchased;
- information about the seller and the client;
- the first installment amount;
- the amount and periodicity of payments;
- methods of payment.
Any client of the store can buy the goods in installments. In this case, there are no requirements for the buyer, as in the case of a loan. Therefore, help with income can be requested to purchase expensive goods.
When applying for an installment plan, the store employees need only present a passport. In addition, for the credit, a more extensive list of documents is provided. For example, you may need a certificate of income, papers on the ownership of property, a certificate of employment from the employer with proof of official jobs, and others.
For the convenience of installment payments, it is better to make an installment card and buy goods in partner stores.
Credit’s Benefits and Drawbacks
The advantages of loans compared to installments:
- The merchandise immediately becomes property rather than acting as collateral.
- Many banking institutions have no down payment.
- You can apply for a loan at any time, even online. The installment plan is issued only in the store during its working hours.
The disadvantages of credit compared to installment loans are:
- increased interest rates;
- in the event of non-payment and the initial registration of the pledge, you lose the right to the property;
- in addition, with an adverse credit history, the loan will not be approved;
- many banks offer loans without a down payment.
A loan and an installment plan are different banking services, and the choice depends on your goals. But be careful because fraudulent sellers can obligate you to pay interest as if you were on loan, although installment payments do not. Some buyers are more comfortable taking cash from the bank and paying for the goods. Others — to issue a credit card or installment card. Others — to conclude a contract for the purchase of goods in installments.
In any of these cases, you buy a product or pay for a service. Consumer credit is a better option if you need the money for something else, such as education or travel.