What is the difference between a loan and an installment plan?

The content of the article

• What is installment and credit
• The main differences from installment loans
• Interest accrual
• Terms of registration
• List of documents
• Delivery Goals
• Maturity
• Prepayment Availability
• Mortgaged property
• Credit history
• What is more profitable – installments or credit

Due to the low standard of living, Russians are increasingly making large purchases on credit. Not seeing the differences, citizens draw up a loan or by installments. For consumers, it is only important that in the end the product or service is provided instantly. But these are different financial operations: if you have the opportunity to choose, consider a solution and weigh the pros and cons.

What is installment and credit

These financial services are fundamentally different. A loan is a loan that a bank provides for an agreed period at interest for the purchase of a thing. That is, the financial institution fully pays for the purchase, and the borrower then returns the amount, taking into account the interest rate under the contract.

Installment – a type of purchase when the seller allows you to pay the cost of the goods in equal installments at certain intervals without overpayment.

An agreement is concluded between interested parties, the subject of which is only a product or service.

The main differences from installment loans

When concluding an agreement, the document stipulates the terms of the transaction. The main thing that distinguishes a loan from an installment plan is paying interest to a bank for using a loan.

When lending is often not provided for the payment of the down payment, and the loan itself is provided for a longer period.

Interest accrual

If a bank signs a contract when buying a car or household appliances, this is considered a consumer loan. A prerequisite for such an agreement is interest accrual..

Often stores offer customers “installments at 0%” through the bank. This is a loan, but skillfully disguised. In this case, the seller pays interest: a discount is assigned to the goods, which will become the bank’s fee. For the buyer, the cost does not change.

A real installment plan is provided from the store without the participation of the bank, and goods are sold without overpayments, commissions and interest.

Terms of registration

Upon signing an agreement with the store, the right to own goods passes to the consumer only after final settlement with the seller. The main installment conditions: making the initial payment, consent for a short period for repayment of the debt (up to a year).

Making a loan is more difficult. Banks are more picky about potential customers: the borrower must be a citizen of Russia not younger than 21 years old and not older than 60. Income and seniority at the last place of work are taken into account (at least 6 months).

A loan will be refused if the applicant already has several outstanding debts.

List of documents

Currently, to receive goods on credit, you only need a passport of a Russian citizen with a residence permit.

Documents that the bank will additionally require if the loan amount is large:

• certificate 2-PIT (on income);
• copy of work book.

Delivery Goals

When applying for a loan or installment plan, a citizen wishes to purchase a product or service without having the amount necessary to pay for the purchase. For a bank, providing a loan is a way of income.

The store uses deferred payment for promotional purposes to attract more customers..

Maturity

The seller gives installments to the consumer for a short period: usually up to 12 months. The loan repayment period is longer. Banks determine it depending on the amount provided and the solvency of the borrower: more often it is 3-5 years, sometimes more.

Prepayment Availability

Another important difference between installments and credit is the need to make a down payment. This is a significant amount – 25-50% of the cost of goods or services. So the seller is trying to protect their own financial interests. To purchase an item without prepayment, take a loan at the bank.

Mortgaged property

When you need a large loan, you will have to provide the bank with a guarantee of repayment of credit funds. It will be the guarantee of real estate or a car. If the borrower does not pay the debt, the property will be transferred to the ownership of the financial institution..

But the goods bought on credit funds immediately become the property of the client, and the thing purchased in installments is considered a pledge until the last payment.

Credit history

All premature repayments, arrears and loan arrears are checked by the bank. Prior to providing a loan to a client, a financial institution will necessarily analyze its credit history. Problems with her will become a reason for refusing to issue money. The store is not interested in the client’s previous debt obligations, therefore it is easier to get installments.

What is more profitable – installments or credit