Installment Buying

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  • Topic: Time, Money, Year
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  • Published : October 5, 2012
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Installment Buying

Installment Buying is purchasing a commodity over a period of time. In the process, an agreement is made between the seller and the buyer to divide the cost of goods into a number of periodic payments called installments over a period of time. These installments, which may be paid weekly, monthly, or yearly, are based on the unpaid balance. The unpaid balance is the amount obtained by subtracting the initial payment, or down payment, from the cost of goods. The down payment may include trade-in-value of the item and is considered part of the amount of cash paid at the time of purchase. The cost of goods purchased in installment may be higher than the cash price when carrying charges are added for the privilege of not paying the full cash price at the time of purchase.

Example 1
Mrs. Gallo can purchase a handy camera for Php27,500 cash, or she can pay Php10,000 cash and Php3,150 a month for 6 months. If she buys it in cash, how much will she save?

Solution:

Given: Cash price = Php27,500
Down payment = Php10,000
Monthly payment = Php3,150 for 6 months

Required: savings if handy camera is bought in cash

Installment price = Php10,000 + (6 x 3,150)
= Php10,000 + Php18,900
= Php28,900
Carrying charge = Php28,900 – Php27,500
= Php1,400

Therefore, Mrs. Gallo will save Php1,400 if she buys in cash.

Example 2
A dealer offers a 4’ x 6’ imported carpet for Php7,500, to be paid over a period of 8 months after an initial down payment of 1/5 the asking price. What is the amount of each monthly payment?

Solution:

Given: Price = Php7,500
Term = 8 months
Down payment = 1/5 of the price

Required: amount of each monthly payment

Down payment = 1/5 x Php7,500 = Php1,500
Unpaid Balance = Php7,500 – Php1,500 = Php6,000
Monthly payment = Php6,000 ÷ 8
= Php750

Example 3
A dining set is offered by dealer A for a down payment of Php2,500, with 12 monthly...
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