Installment Buying

Definition

Installment buying, also known as credit sales or deferred payments, is a method of purchasing goods or services where the buyer pays for the item in small, regular payments over time rather than the full amount upfront. This type of consumer credit allows individuals to purchase items they may not have the immediate cash to pay for in full.

5 Must Know Facts For Your Next Test

1. Installment buying became increasingly popular in the 1920s as a way for Americans to purchase consumer goods like automobiles, household appliances, and furniture.
2. The growth of installment buying contributed to the rise of a new middle class in the 1920s by allowing more people to afford expensive items they otherwise could not have purchased outright.
3. Retailers and manufacturers actively promoted installment buying as a way to boost sales and expand their customer base during the prosperous 1920s.
4. The ease of obtaining credit through installment plans led to concerns about overextension of consumer debt and the potential for economic instability.
5. Installment buying practices were seen by some as predatory, with high interest rates and hidden fees that could trap consumers in cycles of debt.

Review Questions

• Explain how the rise of installment buying in the 1920s contributed to the growth of the middle class in America.
  • The availability of installment buying plans allowed more Americans to purchase expensive consumer goods like automobiles, appliances, and furniture that they previously could not have afforded to buy outright. This expanded access to these products helped create a new, more affluent middle class during the prosperous 1920s. Installment buying enabled the middle class to enjoy a higher standard of living and acquire material possessions that were previously reserved for the wealthy, contributing to the overall economic and social changes of the decade.
• Describe the potential economic risks associated with the widespread adoption of installment buying in the 1920s.
  • The ease with which consumers could obtain credit through installment plans raised concerns about overextension of debt and the potential for economic instability. As more Americans took on debt to finance purchases, there were fears that a downturn in the economy or loss of income could lead to widespread defaults, which could in turn trigger broader financial crises. Additionally, the high interest rates and hidden fees associated with some installment buying practices were seen as predatory, potentially trapping consumers in cycles of debt that could undermine long-term financial security.
• Evaluate the role of retailers and manufacturers in promoting installment buying during the 1920s, and analyze how this impacted the broader economic and social changes of the decade.
  • Retailers and manufacturers actively encouraged the growth of installment buying as a means of boosting sales and expanding their customer base during the prosperous 1920s. By making it easier for consumers to acquire their products through deferred payments, these businesses were able to drive increased consumption and profits. However, this promotion of installment buying also contributed to the rise of a new middle class that could afford a higher standard of living, as well as concerns about overextension of consumer debt and the potential for economic instability. The widespread adoption of installment buying was thus a double-edged sword, facilitating greater access to consumer goods while also sowing the seeds of future financial vulnerabilities that would come to the fore in the Great Depression.

Related terms

Consumer Credit: Any form of loan extended to an individual to finance personal consumption, including installment buying, credit cards, and personal loans.

Deferred Payment: The arrangement where a buyer pays for a purchase in scheduled payments over time rather than the full amount at the time of purchase.

Hire Purchase: A type of installment buying where the buyer does not own the item until the final payment is made, similar to a lease-to-own agreement.