What Is a Direct-Installment Home Purchase?
A direct-installment home purchase is generally a type of hire-purchase arrangement or a lease agreement that includes the right to purchase the property at an agreed price.
This option may be suitable for people who have limitations or are not ready to apply for a bank mortgage, such as:
- People with credit bureau issues or who are blacklisted
- People with irregular income or no salary slips
- Self-employed workers and freelancers
- Buyers who want to purchase a property priced above the amount they can borrow from a bank
- Buyers who want more convenience or flexibility in purchasing property
- People who prefer not to take on debt through a bank loan
Advantages and Disadvantages of a Direct-Installment Home Purchase
Below is a comparison of the advantages and disadvantages to help determine whether this type of home purchase suits your needs.
Advantages
- No complicated bank loan application process
- You may be able to move into the property immediately after signing the agreement
- You may secure the property at today’s price before prices increase in the future
- In some cases, no formal financial background check is required
- The arrangement may be cancelled without creating the same type of long-term bank debt obligation
- The terms can often be negotiated directly between the property owner and the buyer
Disadvantages
- Direct-installment arrangements often use a fixed interest rate, sometimes up to 15% per year
- Unlike bank mortgages, there may be less opportunity to reduce interest costs through refinancing
- The property owner may have the right to terminate the agreement
- If the buyer defaults, payments already made may be forfeited to the property owner, depending on the contract
- There may be less flexibility during financial difficulties such as unemployment or economic crises
- If payments cannot be continued, the buyer may risk losing the property
Common Conditions for Direct-Installment Home Purchases
In many cases, a direct-installment home purchase may include conditions such as a 3-year contract period.
The buyer may have the right to exercise the purchase option at any time during the contract period.
Before moving in, the buyer may be required to pay:
- A down payment
- The first month’s installment or rental payment
After that, the buyer must make monthly payments according to the schedule agreed upon in the contract.
The buyer may also have the opportunity to renew the agreement after the original contract expires, although the property price and payment terms may need to be recalculated.
How to Plan a Direct-Installment Home Purchase Wisely
1. Understand Your Ability to Pay
Because direct-installment terms are not always fixed and often depend on negotiations between the property owner and the buyer, you should first calculate how much you can realistically afford each month.
For example, if your monthly income is THB 20,000 and you believe you can pay around THB 9,000 per month with an assumed interest rate of 15%, you should calculate how long it would take to complete the payments and whether the property owner accepts that payment plan.
A simple borrowing-capacity formula may be:
Monthly Income × 60 = Estimated Property Price You May Be Able to Afford
Example:
THB 20,000 × 60 = THB 1,200,000
This gives an estimated property price of THB 1.2 million.
A simple affordability calculation may be:
Monthly Income × 30%-40% = Estimated Monthly Housing Payment Capacity
Example:
THB 20,000 × 30% = THB 6,000 per month
The exact amount will depend on the agreement between the buyer and the property owner.
2. Save for the Down Payment
A down payment of around 15%-30% of the total property price may be required.
For example, if your estimated buying capacity is THB 1.2 million but you want to purchase a property priced at THB 1.5 million, this may still be possible if the property owner agrees.
If the required down payment is 25% of a THB 1.5 million property, the buyer would need approximately:
THB 375,000
Therefore, it is important to prepare sufficient savings before entering into the agreement.
3. Review the Contract Carefully
Before paying the down payment, carefully review all contract terms, including:
- Installment conditions
- Interest rate
- Monthly payment amount
- Payment schedule
- Purchase option
- Default conditions
- Contract termination terms
Once all terms are correct and agreed upon, the buyer may pay the down payment together with the first month’s advance payment and, depending on the agreement, move into the property immediately.
4. Make Payments on Time
Monthly payments should be made on time according to the contract.
Direct-installment arrangements may not offer the same flexibility as bank mortgages.
With a bank mortgage, borrowers may sometimes negotiate temporary relief or restructuring if they have difficulty making payments.
With a direct agreement between a property owner and buyer, changes to the payment terms depend entirely on negotiations and mutual agreement between both parties.
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Credit: MoneyHub
Source: https://moneyhub.in.th/article/what-is-direct-installment-house/
