In Western countries people have been using the installment plan since the first half of the twentieth century. Today, a large proportion of all the families in Great Britain buy furniture, household goods and cars by installment. In the U.S.A., the proportion is much higher than in Great Britain, and people there spend over 10 percent of their income on the installment plan.
The goods bought on the installment plan are, in almost every case, goods that will last—radios, television sets, washing machines, refrigerators, motorcars, motorcycles, and furniture.
The price of an article bought in this way is always higher than the price that would be paid by cash. There is a charge for interest. The buyer pays a proportion, perhaps one - quarter or one - third, of the price as a down payment when the goods are delivered to him. He then makes regular payments, weekly or monthly, until the full price is paid up. The legal ownership of the goods remains with the seller until the final payment has been made.
Installment buying has advantages and disadvantages. In the past, it was easy to find couples who had been saving for years in order to furnish their homes. Now, they don’t have to do that. Installment buying can help couples with small incomes to furnish their homes and start housekeeping. It increases the demand for goods, and in this way helps business and employment.
There is, however, the danger that when business is bad, installment buying may end suddenly, making business much worse. This may result in a great increase in unemployment. If the people on the installment plan lost their jobs, they would probably not be able to make their payments. If great numbers of people are not able to pay their installment debts, there is a possibility that businessmen cannot collect their debts and will therefore lose money. If businessmen lose money or fail to make a satisfactory profit, the possibilities of having a depression are increased. This is why, in some countries, the government controls the installment plan by fixing the proportion of the down payment and the succeeding installments to discourage people from buying more than they can pay for on the installment plan.