What Is Deferred Payment And How Does It Work

Deferred payment is the financial term used widely nowadays.With limited financial resources, the best of us often finds ourselves in a pickle while buying the luxury we desire. Whether It’s a fancy Ferrari, a lavish mansion, nifty education, or even something as menial as a cell phone, we have unlimited wants. However, with limited cash in hand, we are forced to kiss some of us our wants goodbye. But not anymore!

Deferred payments have appeared like a knight in shining armor for the working-class population. Imagine buying something for which you do not pay at the time of possession but in instalments. Deferred payments made this utopia a reality.

We can now buy things today but pay for them gradually in future. How does this happen? For this we need to understand the concept of deferred payment and how does it work. Let’s dive deeper into understanding this.

What is Deferred Payment?

Deferred payments are a kind of payments that are postponed entirely or partially. You could call it a debt that needs to be repaid in instalments as per the convenience of the debtor. This concept allows businessmen to exchange goods and services, but make the payment for the same at a later time. These payments are introduced for individuals who want to buy something but don’t have adequate money for it at the moment.

Deferred Payment

By postponing the payment, they are given a free hand to garner the money and pay for the product at a later time. For example, many students in the United States suffer from financial hardships amidst education. Deferred payments allow them to continue their education without worrying about money. They are given the privilege to pay for them at a later time.

In the investment industry too, the phenomenon of deferred payments has been blooming in its full glory. Various investors now have an option to invest in deferred payment due to its countless advantages. Thus, deferred payments not only benefit the individual, but also business organizations. These are used in agriculture, in education, real estate, or regular customers seeking to buy luxury items.

How Does a Deferred Payment work?

Deferred payments work on the basis of the debtor/creditor system. A person could defer their payment by asking the recipient of the payment. If the creditor agrees to the arrangement of payment, then you would be expected to pay the price for the product or the service at a later time.

The time of payment is agreed between both the parties and you will not be charged any additional fee for the delay. However, the interest charges or the lack thereof largely depends upon the terms and conditions of your creditor. But more often than not, there is little or no interest involved.

Where are Deferred Payments used?

Many retail stores opted for this payment pattern. The Equal Monthly Instalment is a variant of the deferred payment. In this method, you get the possession of the product on a down payment, which could be 10-20% or any percentage of the MRP set by the store. You are then expected to pay a fixed amount each month until the entire price of the product has been paid. This has made the life of working-class people abundantly simpler. They have been enabled to buy luxuries such as cars, houses, or products like cell phones and laptops simpler.

Deferred Payment

Deferred payment is also utilized by students who find paying their education fees hard. They are allowed to pay the amount whenever it is convenient for them, or as per the guidelines set by the university. Moreover, the tool of deferred payments is wielded widely by people in the agriculture industry, and people hoping to invest in real estate as well.

In real estate, people who want to buy property can obtain loans at the same  no additional interest. However, till the time all the instalments are paid, the paperwork of the property rests with the creditor. The papers are handed over at such a time when the entire amount has been paid by the buyer of the house.

Conclusion

The concept of deferred payment came as a blessing in our lives. Now we can buy objects of luxury without having to stress ourselves over saving money. We can buy virtually anything we want with a promise to pay in the future in full. This payment method involves the tools of law to ensure that no room for default is there. Subsequently, both creditors and debtors have begun to adore deferred payments as they make their lives abundantly easier!

 

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