If you urgently need to buy furniture, but the required amount is not on hand – use installments.
Understand the terms
Consumers often confuse two concepts – installments and credit. This is used by deft sellers, replacing concepts. Let’s see what is the difference between these two ways of selling goods.
Installment is the method of purchase of goods: you take it immediately, and pay in installments within the period agreed with the seller. Terms of payment are prescribed in the contract, which is signed by both parties – both the seller and the acquirer. For more information about installments, you can find out in this material “What is installment plan”.
The seller independently decides on the terms of installments:
- the size of the initial payment – in this case it is called an advance;
- the package of documents that the buyer must provide;
- deadline for full payment of the cost of the goods, etc.
The buyer picks up his purchase after the advance payment. He can use it, but he becomes its owner only after the final settlement of the contract.
Pay attention : for the period of the contract on installment plan the goods are a pledge. To avoid further misunderstandings, carefully study the item about the exchange or return of goods.
The installment plan is beneficial to both parties to the contract:
- The buyer saves on interest.
- The seller can sell more of their products.
All risks are assumed by the selling party, since there is no intermediary bank in the transaction. All controversial issues have to be resolved in court.
The term “loan” means the amount of money that a commercial structure – a bank, an MFI – issues to a borrower. In this case, the latter will be charged a certain percentage. The loan agreement stipulates all the conditions – and the period of use of the amount as well. The creditor must provide a number of documents confirming his solvency.
Banks very scrupulously check the client’s credit history: if you once had any misunderstandings with any banking institution, this may cause a refusal to lend.
Installment without interest – what’s the catch?
You, probably, often faced such picture: on the goods in shop two prices are specified. One of them – with full one-time payment, the second – with the purchase in installments. And the first may be less than the second by 50 percent. How do sellers explain this?
Previously, we focused your attention on the fact that all risks in the sale by installments are borne by the seller. And each of them can name many cases when the buyer is limited to an advance, not bothering with further repayment of the amount. To protect themselves from losses, the seller initially overstates the value of the goods.
In this case, the potential buyer risks to purchase goods with a large overpayment, and the benefit of installments is reduced to zero. In order not to be trapped, it is advisable to analyze the prices of the desired product in different stores. Thus, you can understand how adequate the price and quality of a particular seller.
Read the contract carefully
Often, sellers, offering installments, actually mean a consumer loan or a loan in an MFI (microfinance organization). In this case, the service is issued not by the store, but by the money provider. Banks mainly focus on lending expensive goods – cars, furniture, fur products, home appliances. MFIs select low risk segments – shoes, baby products, and clothing.
Microfinance structures use a lower interest rate, unlike banks. But the maturity of the loan from the MFI is much less, therefore, the monthly burden on the family budget is higher.
In any case, the installment plan costs the buyer much cheaper than the loan. Therefore, it is important to carefully read the contract before signing it: otherwise you may receive a “surprise” in the form of overpayment. And you will hardly be able to challenge the signed document in court, most likely, you will be answered: “Carefully study the contract – you are adults.”
If you are offered to pay in installments through a bank, keep in mind that there is a substitution of concepts, and in fact you sign a loan agreement.
What to choose
The choice of the program is yours: only you will be able to assess the financial benefits that lending and installment plans can give you.
But in general, the following conclusion can be made: if the overpayment on a bank loan and the full cost of goods in installments are comparable, assess the non-financial benefits – ease of debt servicing, the time that will have to be spent on clearance.
Most often, installments have a clear advantage. But this method only has one minus – sellers resort to this method of selling infrequently.