Instalment Buying and Selling, in commerce, an exchange of consumer goods whereby the purchaser makes an initial payment, or down payment, and agrees to pay the balance of the purchase price in a series of periodic payments. The purchaser takes possession of the goods at the time of the first payment but does not obtain legal title until the final payment has been made. The purchaser’s failure to meet the periodic payments entitles the seller to recover the goods. Virtually every type of merchandise is marketed by instalment selling; the principal commodities are durable consumer goods, such as cars, furniture, major household appliances, television sets and audio equipment, and certain articles of clothing.
Instalment buying involves the extension of credit to the consumer. The periodic payments include interest and service charges, as well as the outstanding principal. Consumer instalment credit is financed mainly by commercial banks, sales finance companies, credit unions, and consumer finance companies, as well as by retail outlets. The sales finance companies specialize in this type of credit operation; they advance the entire purchase price of the goods to the seller and secure promissory notes from the purchaser. Under their contracts with the purchaser, they claim the right to repossess the purchased goods if payments are not met.
Retail instalment buying and selling originated in the United States in the 19th century, when it was introduced by the furniture industry. It became important during the prosperous years of the 1920s; many economists believe that the inflation of credit that resulted from instalment buying during this period helped to bring about the economic crisis of 1929 and the Great Depression of the 1930s. In most countries, consumer credit and instalment plans are now closely regulated by commercial law.
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