What is an installment purchase contract for real estate in Spain?

If you are considering buying a property in Spain, it is essential to understand what an installment purchase contract is. This type of contract offers the possibility of acquiring a property by making staggered payments over time. Here, we will explain all the details about this type of contract and how it can benefit your buying process. Read on for key information and to make informed decisions!

Everything you need to know about the installment plan contract

In an installment sales contract, the seller agrees to receive periodically and in a deferred manner a part of the price.  The buyer, on the other hand, agrees to pay this part in a certain number of monthly installments. For this purpose, the agreed payment may be made by means of bills of exchange, promissory notes or other agreed forms.

In addition, a resolutely condition is established in the installment sale contract. This condition allows the property sold to act as security for the payment of the agreed price.

It may happen that the buyer delays payments or defaults on the last installment. In such a case, the seller is entitled to demand payment of all outstanding installments or terminate the contract. In this sense, termination implies that both parties must return the services rendered mutually.

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Advantages and disadvantages of the sales contract 

The installment purchase contract is a widely used modality in the purchase of real estate properties. Payment of the total price of the property is not made at the time of purchase. Rather, it is divided into periodic payments called “installments” or “quotas”.

This modality is especially useful when the value of the property exceeds the buyer’s immediate financial capacity. In this way, you can access the property without making a full disbursement immediately. 

That said, here is a summary of the advantages and disadvantages, so you can evaluate your case: 

Advantages of using an installment purchase agreement 

For the buyer, a purchase contract makes it possible to acquire a property without having to have the total capital immediately. This allows you to realize your goal of owning a home or business premises. 

By distributing the payment in installments, the buyer can adjust his budget. In addition to planning their finances more conveniently.

On the other hand, the seller also obtains significant benefits through this type of contract. By allowing installment payments, the number of potential buyers interested in the property expands. This can expedite the sale and expand business opportunities. 

Also, by holding title to the property until full payment is completed, the seller is assured of having a tangible guarantee in the event of default by the buyer.

Disadvantages of using an installment plan agreement  

The first challenge is related to the transfer of ownership in installment plan contracts. The question arises whether a person acquires ownership of a property by opting for this modality.

The answer is yes. However, the payment of the last installment is not necessary for the transfer to occur. In fact, the transfer occurs at the moment the parties express their agreement and is embodied in the signing of the contract.

The payment of the price is not a fundamental condition for the transfer of ownership. Except for the existence of an agreement with reservation of title, in accordance with article 1583º and following of the Civil Code in force.

This transfer poses a problem for the seller. On the one hand, the property has been transferred. But on the other hand, the payment of the price has been postponed. 

This always implies a risk for the seller, as he will not receive the money immediately. For this reason, it is important to have good advice and negotiations to reduce this risk gap. 

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Types of real estate purchase and sale contracts depending on the methods of payment

In the field of commercial transactions, there are various forms of a sales contract. The choice of the appropriate type of contract will depend on the specific circumstances and preferences of the parties involved.

One of the key considerations when selecting a suitable purchase contract is the form of payment agreed between the buyer and seller. Here we list them for you:

Cash sales contract

In this contract, the buyer pays the full purchase price immediately. Usually in cash or by bank transfer. 

This modality is common in smaller transactions. But it also occurs when the buyer has the resources to make full payment immediately.

Installment Purchase Agreement

In this case, the payment of the price is divided into several installments or installments over the time agreed between the buyer and seller. Both parties establish a payment schedule and an interest rate, if applicable. 

This option allows the buyer to spread the payment over a longer period. This makes the acquisition more affordable from a financial point of view.

Purchase and sale agreement with bank financing

In this mode, the buyer obtains a loan or financing from a bank to pay the purchase price to the seller. The buyer and the bank agree on the terms of the loan, such as interest rate, payment term, and required collateral. 

Once the loan is approved, the bank delivers the funds to the buyer. The buyer uses the money to make the purchase.

Purchase contract with mortgage

This type involves the buyer obtaining a mortgage loan to pay the purchase price of the property.

The property purchased becomes collateral for the loan. That is, if the buyer defaults on payments, the lender (usually the bank) can take out a mortgage. This implies keeping the property.

The buyer will pay the purchase price in periodic installments. This includes both the principal and interest on the mortgage loan.

Purchase and sale agreement with exchange

In this modality, the payment of the price is made through the delivery of a good other than money. In other words, the parties agree to exchange goods instead of using cash. 

For example, the buyer may give another property, a vehicle or other asset of similar value to the seller as payment. Both parties must agree on the terms and equivalent value of the exchanged goods.

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The installment purchase contract for a property in Spain is an option if you are planning to purchase a property. It gives you the flexibility to pay in installments over time, facilitating the purchase of your desired home. 

From the negotiation to the review of the purchase contract, we will make sure that everything goes smoothly. Don’t waste any more time, contact us at tasconsultoria@tas-sl.es! Our experts will advise you and provide you with the support you need when buying your property in Spain.