When does an installment agreement make sense?
The risk of falling into the debt trap through an installment payment or a conventional bank loan is high. So you should be all the more careful with it. In the following cases, however, an application for payment in installments can make sense:
- Some of your customers’ bills have not yet been paid , but major purchases still need to be made. These acquisitions are directly related to ongoing business operations.
- You want to expand your business and have to buy new machines or computers for your employees.
- The bank does not currently grant you a loan because you already have a negative Schufa and are therefore dependent on an installment purchase without a credit check .
- There are extremely high expenses that have a significant impact on the liquidity of your company. For example, when buying a truck or car, as well as new production machines.
It is important that you do not overestimate yourself by paying in installments from PayPal and Co and thus slip into over-indebtedness . Therefore, always have your investments checked by a competent accountant, financial or tax advisor.
Cost of an installment payment
Since installment payments from suppliers do not have to adhere to the extensive laws of banking , there are sometimes large differences between individual offers. The main problem is transparency , as most contracts contain hidden costs. This can lead to a higher interest rate after a certain period of time or to extreme default interest.
For this reason, you should have the terms and conditions of the installment paid in writing and check them carefully. In the case of very large amounts, it is also worth asking an experienced lawyer to see the contract.
What is the interest rate?
The interest for an installment purchase despite negative Schufa is based on the current bank interest rates with reputable providers . Nevertheless, a trend can be seen that third-party providers such as PayPal have a slightly higher borrowing rate. Between three and 15 percent interest rates are perfectly normal.
How do installments affect your creditworthiness?
According to ELECTRONICSENCYCLOPEDIA, the installment payment is like a normal loan, which is why the Schufa is also informed about it. Serious providers of hire purchase work in principle with Schufa, get background knowledge of your payment behavior and of course your creditworthiness . At the same time, they also inform the Schufa about your installment payment.
If an agreement on the partial payment of products is entered in the Schufa, this initially has a rather negative effect. In the medium term, however, it can make a good impression on future creditors if you make your installment payments completely and, above all, on time . In addition, your individual interest rate is calculated according to your Schufa score . If you make a positive impression, you have a good chance of getting a low interest rate.
Alternatives to payment in installments
To avoid the high risk of over-indebtedness, you have a few alternatives available.
- Payment by credit card
Some credit card manufacturers offer their customers an attractive installment program. With its Flex Plus credit card, VISA is a pioneer in the field of “settling credit card bills by paying in installments”.
- Conventional financing (credit)
The best way is still the normal bank loan. You can apply for it very quickly, you have a personal contact, you can “negotiate” the exact terms and conditions and you are safe with a reputable bank. In addition, banks have to comply with a number of laws, which offers you as a customer extensive legal protection.
For machines and vehicles, leasing is an increasingly popular form of purchase. More precisely, it is more of a type of rent. The product is made available to you for a monthly leasing rate. At the end of the term, you can return it, exchange it for a newer model or keep it with a final payment.
If you still want to claim a partial payment, but your supplier does not grant it, you can, for example, make the installment purchase via PayPal . PayPal is a globally recognized company known for reliability and security. To apply for payment in installments, you first need an activated account and then submit an application via the Internet. Keep in mind that PayPal charges quite high interest rates and the total purchase price can therefore increase significantly.
What is the difference between part purchase and hire purchase?
In the case of hire purchase , the total price is repaid in monthly payments . These monthly contributions are usually quite low. In the case of a partial purchase, on the other hand, the purchase price is divided into two to three payments that have to be transferred at a certain point in time. The repayments are therefore quite high and occur at large intervals. In addition, a partial purchase is usually not entered in your Schufa.