Installment plan or loan: which is really more profitable?

Installment or loan: which is truly more advantageous?

Many people believe that in-store installment plans are practically free, while a bank loan is expensive and burdensome. However, as calculations by the Central Bank show, this isn't always the case. Let's explore the true cost of purchasing with installments and why this stereotype can hit your wallet.

**The "Free Installment Plan" Myth**

Does an interest-free installment plan exist? Imagine you're offered 10 million soums. You can receive the entire amount upfront (Option A) or 2 million soums in installments over 5 months (Option B). Clearly, it's more advantageous to receive the entire amount upfront unless Option B offers additional benefits. The store reasons the same way, so it won't sell an item on an installment plan at the same price as if it were paid in full.

Now let's change the terms: you're offered 10 million soums upfront (Option A) or 20 million soums in installment payments of 4 million over 5 months (Option B). In this case, many will choose Option B, and this is precisely what stores offering installment plans do.

The hidden markup in installment plans isn't a percentage, but rather the price itself. The seller increases the price of a smartphone, refrigerator, or TV, and you pay this markup without even noticing it. The contract may say "0%," but the final bill will be significantly higher due to hidden fees and trade margins already included in the price.

**Central Bank calculation using iPhone as an example**

The Central Bank of Uzbekistan analyzed installment plans from a consumer protection perspective, using popular Apple smartphones as an example.

If an iPhone costs around 17 million soums in cash, then with a 12-month installment plan, its price in Uzbekistan increases to 18-23 million. On average, installing a phone installment plan increases the price by approximately 39.6% per year (ranging from 27-44%). In one of the regulator's examples, a product worth 17.77 million rubles ended up costing 26.99 million rubles, representing an overpayment of 52%.

For clarity, let's compare the total overpayment with standard banking instruments:

| Indicator (12-month term) | Bank microloans | Store installment plan (nasiya) |

|---|---|---|

| Overpayment for the product | ≈23% | ≈39.6% (up to 52%) |

| Converted to an annual interest rate | ≈40.3% | ≈66.5% (47-74%) |

It's important to note that the trade markup and the annual interest rate are different values, and their comparison must be accurate.

**Why installment plans are often more expensive than you think**

The table shows that installment plans are generally more expensive than loans. It's important to distinguish between the honest Western BNPL (Buy Now, Pay Later) service, where the store pays the service commission from its margin, and our markup, which is often passed on to the buyer.

The overpayment on installment plans is often hidden. The buyer focuses on the small monthly payment, while the final payment goes unnoticed. If the contract doesn't include an "interest" section, the financier calculates the effective interest rate. To estimate the annual interest rate with equal payments, the markup over the term can be roughly doubled. Thus, a 40% markup becomes 66.5% per annum. An overpayment of 30/40/50% doesn't seem so daunting until it's converted into bank interest.

There is also a delicate religious aspect. Many are concerned about which is better from a traditional perspective: nasiyya or a loan. In nasiyah, the word "interest" is not used because Islam prohibits riba (usury), but allows trade with a fixed, pre-agreed markup (murabaha). Since 2026, a law on Islamic banking has been in effect in Uzbekistan, and the market is gradually shifting toward transparent halal instruments. However, even in a regular store offering nasiyah, equipment must be sold fairly, so that the buyer clearly sees the difference between the loan price and the cash price.

**Microloan and Installment Plan: Differences in Regulation**

The main difference between an installment plan and a loan is oversight. Banks are subject to strict regulation. Since July 24, 2025, a strict overpayment cap has been set for bank microloans—no more than 50% per annum, and the daily interest rate is capped at 0.25%. A loan will not be issued if payments on all outstanding debts exceed half of the official income. Since January 29, 2026, banks are required to provide borrowers with a written risk checklist before signing the agreement.

Installment plans have long been a different matter. By signing an installment plan, people often found themselves outside the bank's strict rules. Moreover, information about store debts is often not reported to credit bureaus, making the actual debt burden "invisible." It's no coincidence that approximately 70% of microloan borrowers have more than one outstanding debt, and taking out a new loan to pay off an existing one is a surefire way to fall into debt.

However, the situation is changing. On July 15, 2026, the Central Bank signed an important decree taking the regulation of installment plans to a new level. Starting September 1, 2026, sellers are required to honestly disclose the actual overpayment and the full price in any advertising. In other words, disguising a markup as "0%" will now be prohibited.

**How to avoid overpaying: calculate the total cost**

If you're thinking about buying appliances on credit or borrowing from a store, don't make a decision based on emotion. Here's a short checklist to help you avoid overpaying:

1. **Find out the cash price.** Ask: "How much does the item cost if I pay cash now?" Write this figure down.

2. **Calculate the installment plan total.** Multiply the monthly payment by the number of months and add the down payment, if applicable.

3. **Compare.** Subtract the cash price from the total installment amount—this is your overpayment in soums.

4. **Check the rate.** Find out the current microloan rate from your bank and compare the totals—this is an honest comparison of "consumer loan vs. installment plan."

5. **Check the seller and yourself.** Make sure the organization is listed in the Central Bank's registry, and check your credit history and credit balance on the my.gov.uz portal—installment plans are often not reflected there.

If you absolutely must pay off your debt, it's smarter to choose a transparent instrument with terms guaranteed by the Central Bank. A targeted microloan for purchasing equipment or a regular loan is advantageous because you can go to the store with cash and buy the item at the lowest possible cash price. Alternatively, an online microloan from AVO bank offers a fair interest rate (from 34.9% to 49.9% per annum), where the full loan price (APC) is revealed before signing. A nice bonus: 0% interest for the first 30 days if you repay the loan within this period. The application process is done in the app, without collateral, guarantors, or bank visits.

**Bottom Line: Installment Plan or Microloan?**

Which is more profitable: an installment plan or a loan? The answer always depends on the specific transaction's mathematics. But more often than not, the bank wins: its maximum rate is limited by law, and interest is only charged on the actual outstanding balance. Store markups, on the other hand, are usually applied to the entire amount. Don't be afraid of the word "interest" in a bank agreement, and don't blindly trust the zero figure on the counter. Calculate the final overpayment in soums—this is the only reliable way to save money.

Viktor Zhivov, online banking expert at AVO bank, exclusively for nuz.uz