Contents
- What is an installment plan?
- Differences between installments and credit
- Types of installments
- Installment card
- Why might an installment plan be denied?
What is an installment plan?
An installment plan is an interest-free loan provided to a buyer for the purchase of specific goods or services. In this case, the buyer completes the transaction, receives the product, and gradually pays off its cost over a predefined period. This approach allows buyers to start using their desired item right away while spreading the financial burden over a longer time. This is especially convenient when purchasing expensive items such as home appliances, furniture, or cars, as it helps avoid sudden budget depletion immediately after the purchase.
Many stores partner with banks to offer their customers installment plans on popular products. For example, it is now possible to purchase expensive devices like the iPhone with an installment payment option, making them accessible to a wider audience.
Differences between installments and credit
Although installments and standard credit appear similar, there are important differences between them:
| Credit | Installment |
|---|---|
| Number of parties in the transaction: two parties — the borrower and the bank. | Three parties: the store, the bank, and the buyer. |
| Purposes: various, including purchasing real estate, cars, education, and medical services. | Purpose: purchasing a specific product or service. |
| Who pays interest: the borrower. | The store. |
| Documents required for processing: proof of solvency, income statements, bank statements, passport, tax identification number. | Only a passport is required. |
| Collateral: required for large loans. | No collateral required. |
Types of installments
There are various types of installments that differ based on who initially pays for the product. The main schemes include:
- From a bank or microfinance organization: The most common form is POS financing, which is done directly in the store. The bank provides funding on the spot, allowing the customer to avoid applying to the bank separately.
- From the store: In this case, the store itself finances the installment plan, taking on the risk and freezing part of its funds until the customer pays off the debt. This approach allows attracting customers with poor credit histories, as credit scores are not checked.
Installment card
An installment card is a bank card that allows customers to purchase goods in installments from the bank's partners. The purchase amount is divided into parts that are paid off over a certain period. The terms depend on the bank and the specific store. Unlike credit cards, installment cards have their own features:
| Credit Card | Installment Card |
|---|---|
| Grace period of about 50-60 days, after which interest begins to accrue. | Repayment period starts from three months. |
| Can be used at any store. | Payments can only be made at partner stores. |
The installment card may also offer additional options, such as loyalty programs, cashback, and other bonuses, which can be either free or paid.
Why might an installment plan be denied?
Before approving an installment plan, the bank requests information about the buyer, and if something does not meet their requirements, a denial may follow. The most common reasons for denial include:
- Credit conditions, such as the buyer's age and marital status.
- Poor credit history, if there have been previous defaults on other loans.
- Having multiple active loans, which may raise doubts about solvency.
- Errors in the submitted data, such as an incorrect phone number.
Banks typically do not disclose specific reasons for denial, so it is advisable to check your data and credit history by contacting credit bureaus, which provide such information for free twice a year.