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What is Instalment Payment System?


Instalment Payment System: Under this system the purchaser or customer immediately pay some down payment of the goods and rest of the amount paid in equal instalments. In this system there is a contract between vendor and purchaser in which the amount of instalments, interest, payment period and if there is any default of payment by purchaser what action will taken by vendor etc are mention. The purchaser has right to use the goods after the down payment of that goods. The vendor has no right to take the goods back if the purchaser is unable to pay any instalment amount. The vendor can only sue on purchaser to get back his money.

Example: Mr. Vijay has purchases 4 furniture under instalment system. He paid Rs. 20, 000 as down payment. He has to pay Rs. 15,000 each in 5 yearly instalments. The instalment period started from 1st august 2018. The yearly interest charge by vendor is 6.2% p.a. Find out the interest amount in each instalment.

Solution:
Total cash price
calculation
interest
Cash price
Instalments
            80, 000
Less: (20,000)
        = 60, 000
60,000*6/100
=3, 600
3, 600
11, 400
15, 000
          60, 000
Less: (11, 400)
=      48, 600
48, 600*6/100
= 2, 916
2, 916
12, 084
15,000
         48, 600
Less: (12, 084)
=        36, 516
36, 516*6/100
= 2, 190.96
2, 190.96
12, 809.04
15, 000
         36, 516
Less: (12, 809.04)
=      23, 706.96
23, 706.96*6/100
= 1, 422.417
1, 422.417
13, 577.58
15, 000
          23, 706.96
Less: (13, 577.58)
=        10, 129.38

4, 870.62
10, 129.38
15, 000

Example: Ms. Niharika has purchases a machine whose cash price is Rs. 70, 000 under instalment system. He paid Rs. 10, 000 as down payment. He has to pay Rs.20, 000 each cash price in 3 yearly instalments. Niharika also pay 2% insurance premium to vendor. The yearly interest charge by vendor is 5% p.a. Find out the interest amount and premium value.

Solution:
Total cash price
calculation
interest
Insurance premium
Cash price
            70, 000
Less: (10,000)
        = 60, 000
Down payment
-------------
---------
10, 000
          60, 000
Less: (20, 000)
=    40, 000
60, 000*5/100
= 3, 000
60, 000*0.02
= 1, 200
3, 000
1, 200
20,000
    40, 000
Less: (20, 000)
=        20, 000
40, 000*5/100
=2, 000
40, 000*0.02
= 800
2, 000
800
20, 000
          20, 000
20, 000*5/100
= 1, 000
20, 000*0.02
= 400
1, 000
400
20, 000
Total

6, 000
2, 400
70, 000
                                                                 
Example: Mr. Gupta has purchases washing machine under instalment system. He paid Rs. 5, 000 as down payment. He has to pay Rs. 2,000 each in 4 yearly instalments. The instalment amount started from 1st September 2018 is as follows: 2, 000, 1, 200, 8, 00 and 5, 00. The yearly interest charge by vendor is 10% p.a. Find out the interest amount in each instalment.

Solution:
Year
Calculation
interest
Cash price
Instalments

Down payment

5, 000
-------
1
987.19+685.91+455+2, 000 = 4, 128.1/11
375.28
1, 624.72
2, 000
2
685.91+455+1, 200 = 2, 340.91/11
212.81
987.19
1, 200
3
455+800 = 1, 255/11
114.09
685.91
8, 00
4
500*10/110
45
455
5, 00
Let 4th year interest is Rs.100 and the ratio of rate of interest and amount due is 10/110


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