For many people, the thing they wish to acquire at the beginning of their independent life is a car. Not everyone can afford to buy a good car. A car is a necessary means of transportation, especially if it is used to move to the place of work and on frequent business trips. For that category of people who do not have enough money to purchase a vehicle, an installment plan will be the way out. In fact, this procedure is a loan without interest on the purchase of a specific model of car.
A bit of history
For the first time, they started talking about providing an interest-free loan to buy a car in the early 80s of the twentieth century. During this period, one of the major American automakers decided to sell their goods, providing preferential payment terms for their customers. If a person did not have enough money to buy a vehicle, then he was offered the opportunity to deposit part of the money immediately, and the rest was distributed for a certain number of months. This method was constantly being improved, and soon the company became very popular among competitors, and in the world they started talking about the first interest-free loan to buy a car - the opportunity to purchase a car by installments.
The bottom line was that the car company paid the missing part of the money for the buyer on its own, but then transferred it to the bank on credit. The banking institution did not immediately buy back the debt and not the entire amount, but at a discount. Initially, the buyer had to pay at least 30% for the car. The amount of the entry fee could vary, it depended on the term for which installments were provided.
In our country, the opportunity to purchase a new car in installments appeared recently.
Differences in installments and credit
Loans and installments for the purchase of a car, in essence, are pretty similar concepts. In any case, it is lending money to buy a car, but if you look, they have some differences:
- Dates. A loan is issued for a long period, the most common loan agreement lasting 5-10 years, while the contract for the sale of a car by installments is usually concluded for a year or even several months.
- The interest rate on car loans is mainly 15-20%. From the advertisements, it can be concluded that the installment plan is issued as an interest-free loan, but buyers should be aware that, in fact, there is no zero interest rate, at the conclusion of this agreement it is very close to zero, but it is not. Banking employees claim that in installments the rate is 0.5% or 1%.
- An initial fee. When buying a car on credit, it can be less than 10% of the value of the goods. Installment sales of cars are carried out upon making an initial payment of at least 20-30%, and in most cases 50% of the total cost.
Purchase of goods by installments involves the payment of a large amount immediately, and the remaining debt is paid in installments, and all debt must be repaid in a year or two at most.
Who has the right to conclude a contract
A new installment car is purchased by persons who can be customers of banks and enter into contracts on their own behalf. When buying goods at a car dealership and not paying the full amount of the cost of the car, part of the money is repaid at the expense of the company, but all the debt is transferred to the bank with which the dealer concluded an agreement.
In any case, the buyer must be capable and of full legal age. In this case, the boundary age is calculated taking into account how many years the buyer will be at the time of payment of the last part of the debt. So, at the time of the transaction, a citizen must be no older than 64 years with an installment agreement for one year and no older than 63 years - two.
Key documents required to conclude a transaction
In order to purchase a car by installments, it is necessary to submit a package of documents for consideration to the dealership employees. It is much smaller than when applying for a loan, and consists of the following papers:
- Application for the possibility of making payments in installments.
- A copy of the passport of a citizen of the Russian Federation who wishes to purchase a vehicle.
- Copy of the driver’s driver’s license.
Documents that confirm the solvency of the buyer, such as a copy of the work book or income statement, are not required when concluding this agreement.
Underwater rocks
Every person who decides to make a purchase without having the main amount of the cost of the vehicle must understand that the consequences of failure to fulfill obligations to pay the debt can be serious, including the seizure of the car. Only a citizen who has a stable income can buy a car by installments without interest.
The buyer must understand that he can pay off the debt only for a year or a maximum of two. It is impossible to avoid making payments. At the conclusion of the installment agreement, a schedule for making payments is drawn up. If the person who is the buyer of the vehicle cannot make the payment, then he is threatened not only with the accrual of late interest, but also with a re-qualification in a new loan. Most often, under the terms of the installment agreement, there is a clause according to which, in case of delay in payment of a part of the amount at least for a day, a car loan agreement with a rate of at least 15% is automatically drawn up.
How are installment conditions determined
If the buyer does not have a certain amount to realize his dreams, then he can buy a car in installments. The contract is signed with representatives of the car dealership in which the vehicle is for sale. The conditions largely depend on the agreements between the salon management and the banking institution, as well as on how much the car dealership is ready to pay the bank for providing this opportunity to its customers.
Since an interest-free loan, in fact, does not exist, the buyer must understand that at least half a percent, but the car dealership independently pays to a financial institution. There are also conditions that the buyer must fulfill to conclude the above contract. Mandatory is the availability of insurance. Installment, in essence, is the product of three organizations: a car dealership, a banking institution and an insurance company.
Under the influence of favorable conditions, a certain model of a vehicle, which is chosen by the dealer of the company, usually falls. Then the bank enters the “game” with which the car dealership has developed partnerships. A banking institution pays for a specific model at a discount, and the full price of the goods is indicated in the installment agreement with the buyer. That difference between the full cost of the car and the value at a discount is the real income of the bank on this transaction.
Most often, when buying a car insurance is required, which will cost the buyer an installment plan 2-3% more.
Additional expenses
During the conclusion of an interest-free loan agreement when buying a car, you need to get an insurance policy. The main car insurance companies in Russia are CASCO and CTP. The amounts that will need to be paid depend on various factors: on the make and model of the car and the year of manufacture. High insurance premiums are defined for expensive luxury cars, as well as for sports cars.
In addition to the costs of insurance in installments, the car will require additional costs for the preparation of bank accounts to make payments. This is a cost of 10 to 20 thousand rubles for opening a bank account and making a card.
Buy a used car by installments
According to experts, the vehicle immediately after leaving the cabin loses 20% of its full value, and after a few years - half the amount. There is nothing unnatural in a person’s desire to buy a used car. The opportunity to buy used cars in installments is provided by many banks, as well as sellers of used vehicles themselves. Banking institutions impose restrictions on the age of the car, individual customers provide this opportunity regardless of the year of manufacture of the car. The bank provides installments in cases where the age of a domestic-made machine is not more than 5 years, and a foreign one is not more than 10.
Installment cars are purchased by concluding a sales contract marked “installment plan”. When registering a transaction, it is necessary to indicate the real price of the goods so that when problems arise with payments, you do not have to lose money.
Is installment profitable
Buying a car on an interest-free loan or by installments is beneficial only for that category of people who have a stable good income and pay the required amount on time. Anyone who has delayed the payment of debt may fall into hopeless bondage.
In addition to risk, installment has only positive aspects: the procedure for concluding a contract is simplified, it is necessary to submit a minimum of documents for consideration of the application, the payment term is short, early repayment of debt is allowed.
Special Grace Lending
The legislation provides a program through which you can buy a car in installments with the so-called grace period. It is valid when opening an account with the possibility of using a plastic card. The car buyer will not be charged interest on the loan for the period specified by the contract. In addition, you can make any amounts, even if they significantly exceed those indicated in the payment schedule.
Usually, such a grace period lasts one year, and if the buyer pays the full amount of the cost of the car during this time, it actually turns out that he purchased the car in installments.