Common types of installment loans are mortgages, auto loans, and personal loans. As with other credit accounts, timely installment loan payments can help you establish and maintain strong credit scores. Your credit score will determine if you qualify for an installment loan, as well as your interest rates and terms if you do. Leasing is a practice that allows a person to use the asset for an agreed period of time against payment of rental rents. At the end of the term, the lessor can sell the asset to a tenant or terminate/renew the contract by mutual agreement. Although paying an installment loan as agreed and has a completely positive effect on solvency, it is unlikely that prepaying the loan will have a much greater effect than simply repaying on time. In a revolving credit account, you decide how much you charge each month and how much you want to pay back. If you have a month-to-month balance, the interest you incur will contribute to your total balance. Although the lease has been classified as a finance lease in the example above for accounting and VAT purposes, it cannot always be accepted only for all leases. As shown in the tables above, the indicators for classifying a finance lease for accounting purposes differ considerably from the requirements for a finance lease (as defined in point (b) of the definition of instalment credit agreement in the VAT Act) for VAT purposes. While you are not required to pay the full balance each month, the lender will provide you with a credit limit or a maximum amount that you are allowed to charge. It will also assign you a minimum monthly payment, which may change depending on your balance. If you miss payments or arrive late, your credit score will suffer.

Unlike a revolving account, such as a credit card, an installment loan is considered closed once it is repaid. A closed account with a good reputation will remain on your credit report for 10 years and will continue to benefit from your score. The transaction is therefore considered to be a finance lease within the meaning of subparagraph (b) of the definition of an instalment loan agreement in the VAT Act. The following table takes into account the information in Example 1 to classify an installment loan agreement in relation to the paragraph (a lease therefore) for VAT purposes: Paying installment loans on time is one of the most important ways to build and improve your loan. Payment history is the biggest contributor to your credit score; On-time payments show lenders that you are a responsible user of the loan. The following table compares the accounting ratios with the requirements of an installment loan agreement of the VAT Act (in particular paragraph (b) of the definition of an installment loan agreement (i.e. a finance lease agreement)): The installment loan is simply a loan for which you make fixed payments over a certain period of time. The loan has an interest rate, loan term, and fees that affect the amount you pay per month. .