Every entrepreneur knows this. A machine is broken or important material is missing, but the financial means are not sufficient for the new purchase. Then an installment purchase can be a good solution. But what is the difference to a normal loan and how can you settle the installment payment at the tax office?
What does installment mean?
According to DICTIONARYFORALL, a partial payment or installment payment is a type of financing in which you can pay off your purchases in monthly amounts . Especially with large purchases for your company, buying in installments can be worthwhile, because the liquidity is retained. From a legal point of view, however, you only own the goods once you have paid off the full purchase price.
Consumer protection organizations even recommend payment in installments in the online shop if payment on account is not possible . According to the motto “first the goods and then the money” you have a certain certainty that the goods will arrive at your place and are in the appropriate condition before you pay for them in full.
With normal hire purchase, a distinction is made between two variants. On the one hand the purchase with minimum rates , on the other hand the purchase with fixed rates .
- If your retailer offers you installment payment with a minimum amount , you have the option of paying back the goods quickly at any time. In months when business is sluggish, you can rely on the minimum amount and thus keep your liquidity.
- When buying with fixed installments, you have to transfer the same amount to the merchant’s account every month . There is no way to balance bad and good monthly income.
What is buying in installments with interest?
Some third-party providers that offer installment purchase charge interest . This is the case, for example, with PayPal installment payments and installment purchases with a credit card. The interest rates vary and are usually even higher than the interest rates of normal credit institutions. Compared to an annuity loan, you can expect interest when buying in installments, so the bottom line is usually more expenses. Furthermore, third-party providers usually act according to a strict dunning system, which means that you can slide into bankruptcy faster than assuming a bank loan .
How does payment in installments work?
The application for an installment payment is similar to the request of an annuity loan. First, you need to contact the seller and ask about the formalities they need. As a rule, only an information sheet is filled out and confirmation of Schufa information is obtained. With some providers you can order in installments, although there is a negative Schufa entry . Others, however, do a detailed credit check .
After approval that you are authorized to purchase in installments, you will likely be sent an exact offer of how much the monthly payments will be. Up to this point, the payment request in installments is still completely non-binding, which means that you can withdraw at any time. The contract is only valid after it has been signed.
In the case of private companies that grant a direct supplier credit, an informal brief is often drawn up. However, you should always insist on a detailed contract in order to have a basis for the legal dispute in case of doubt.
Advantages of payment in installments
As already mentioned, the liquidity of the installment payments is a big plus. Do you need new computers for your employees or maybe even a new production machine? By buying in installments, you can make these necessary purchases immediately. You also have the opportunity to test the new machines in peace before paying them off in full. So if it turns out to be a bad investment in retrospect , you still have the option of canceling the purchase cheaply. At the same time, you can deduct the monthly interest amounts from tax and thus save a lot of money – in addition to the normal depreciation of the acquisition value .
Disadvantages of buying in installments
Although the benefits of paying in installments sound very tempting, you should be aware of the risk . If you want to buy in installments, this is initially a good opportunity to make large purchases that are urgently needed in this company. However, it can quickly become a debt trap. Due to the recurring opportunities to buy in installments, new purchases are made, which in total lead to a very high monthly repayment obligation . It is not uncommon for young people in particular to fall into this trap, which can even lead to bankruptcy.
A third credit point could be the dunning behavior of private providers of the installment payments. Both PayPal and Klarna are considered to be very reputable, but will charge you expensive dunning fees even if there are slight delays in payment. This is a major shortcoming, especially with a start-up company or current liquidity problems.