In installment system an agreement is made between buyer and seller to purchase and sell of goods. The buyer makes certain down payment at the time of signing agreement and The balance is paid in installment over a period of time.
The following are the features of installment purchase system: 1. Installment purchase system is just like an outright credit sale of goods.
2. The buyer makes the payment in different installment over a period of time as agreed upon in the agreement. 3. Under installment purchase system, the buyer gets the immediate possession as well as the ownership of goods. 4. The seller can not take back the goods if the buyer made default in the payment of installment but he/she can sue against the buyer for the recovery of amount due
Nature of agreement
The buyer and the seller enter into an agreement whereby the price, the number and the amount of installments is determined in advance. The ownership of the product is transferred as soon as the first installment is paid by the buyer.
Greater Risk
The possession as well as the ownership is transferred to the buyer after the payment of first installment. In case of default in the payment of an installment, the seller cannot recover back the article from the buyer. He can recover only the price of the article from the buyer through the court of law.
Suitability of Product
Only the costly articles are suitable for selling on installment sale. Generally those products which cannot be purchased by the customer on their own are purchased by installment sale.
Disadvantages to Seller
Loss of ownership of the product The risk of bad debts is more due to immediate transfer of ownership The amount remains locked up Large amount is spent on administration No benefit of price rise Only costly durable, standardized quality be items can be sold under installment system
OWNERSHIP
The ownership of the product is The ownership of the product is transferred to the buyer only after the transferred payment of the final installment. In case of default in payment of installment the seller can recover back the article. In case of default in payment the seller can sue the buyer for the recovery of price, but he cannot take back the articles.
SELLERS RIGHT
the buyer cannot sell or mortgage the The buyer can sell or mortgage product till the payment of last the product as he becomes the installment. owner on paying the first installment
BAD DEBTS
Risk of bad debt is lesser as articles can be recovered back and resold.
STATUS
The buyer remains the hirer till he pays the last installment.
The buyer becomes the owner immediately after paying the initial installment.
NATURE OF INSTALLMENT
Till the last installment is paid, the installment are treated as hire charges.