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Installment and credit: what’s the difference?



Credit is not the only way to buy the thing or service you want with bank money. There is another convenient product – installment loans. We cannot say that some options are good and some are bad. What the difference between installment and credit, we will consider in the material below.

What is a credit?

A credit is the provision of money by a bank to a client on terms of repayment and urgency. For the financial service, the client needs to pay the bank. The fee is a commission in the form of an interest rate.

Urgency is a clear deadline for repayment of money. The loan can be long-term or short-term. In the first case – more than a year, in the second – less than a year.

Repayability is the repayment of the debt within the stipulated time for a fee. The amount of the interest rate depends on different factors:

  • The purpose of obtaining bank money. Non-targeted consumer loans will cost more than mortgages, car loans, etc.;
  • collateral. Subject to the provision of collateral or confirmation of a stable high income;
  • credit history. If there are debts or parallel loans, the rate will be higher.

Under the loan you can get both cash and non-cash transfer.

All loan terms are negotiated in advance and confirmed in a written agreement.

What is an installment loan?

It is a way of buying a product where you can pay for it in installments over a certain period of time. The installment payment is always free of charge for the customer.

The installment payment can be of two kinds:

  • Customer-store relationship. You can make a down payment and then pay back the debt in installments;
  • The client-store-bank relationship. In fact, it is a credit relationship, but to the consumer it looks like an installment plan. The scheme looks like this: the store sells goods at a wholesale price, and the difference in value compensates the interest rate to the bank. The buyer loses nothing. He buys goods at the standard price and pays the bank nothing.

The main difference between installments and credit

The fundamental difference is:

  • Zero interest rate installments. And to be more precise – the absence of the rate for the client. The credit relationship necessarily involves remuneration in the form of interest. Even in the case of a grace period on the credit card, the interest rate is prescribed in the contract (in case of late payment);
  • Complexity and speed of processing. Installment can be made directly in the store for 15-20 minutes. The only document you need is your passport. The loan can be completed remotely or in the office, but still the entire process will take more than 20 minutes. In addition to your passport, you will most likely need a salary certificate, and possibly other documents;
  • Your credit history. The difference between a loan and an installment loan is that the bank will definitely make a request to the BCI (Bureau of Credit Histories) and receive a report on the client’s credit history. You don’t have to do this in order to apply for an installment;
  • The down payment. If you pay the cost of goods in installments, you need to leave at once in the store 20-30% of the amount. For a loan this is optional. The exceptions are mortgages and car loans;
  • The timing of payments. For loans, it is longer – up to 5 years (only applies to non-targeted consumer credit). For installment loans – no more than a year or two;
  • property rights. One and the same product can be bought on credit or in installments, but more often than not, in the case of installment loans, the transfer to ownership occurs only after full payment of the cost.

What to choose: credit or installments?

There is no clear answer to the question “Which is better: installment or credit?” The fact is that each product is good in certain situations.

If you want to buy something specific in a certain store, it’s better to choose to pay in installments. That way you can avoid overpaying for the interest rate, long processing time, and a big lump sum payment from your own budget.

If you are still undecided, it is better to opt for a loan. This way you can afford a wider range of goods and stores. After all, not every outlet will agree to “stretch” payment.

In addition, credit is useful if you need to pay for several goods at once.