Category: 

What is a Deferred Payment?

Article Details
  • Originally Written By: Malcolm Tatum
  • Revised By: A. Joseph
  • Edited By: Bronwyn Harris
  • Last Modified Date: 25 August 2014
  • Copyright Protected:
    2003-2014
    Conjecture Corporation
  • Print this Article
Free Widgets for your Site/Blog
Sean Connery was a milkman before he became an actor.  more...

August 27 ,  1859 :  The first successful oil well in the US was drilled.  more...

A deferred payment is an arrangement in which a debt does not have to be repaid until sometime in the future. The debt might be created when a person takes out a loan, for example, or purchases a good or service. Payment for the loan, good or service can then be deferred for a certain amount of time, depending on the arrangement. In some cases, payment in full must be made by a certain date, and in other cases, multiple smaller payments can be made until the full amount has been paid. Depending on the specific arrangement, interest might be added to the amount due starting immediately or after a certain amount of time — or no interest might be added at all.

Common Sales Tool

The use of deferred payment plans is one of the more common sales and marketing tools used by companies. Essentially, the underlying concept is that customers can buy now and pay later. When a customer is unable to pay for the purchase right away but has a reasonable expectation of being able to provide payment in full by a certain date in the future, a deferred payment plan makes sense for both the consumer and the seller. Some companies offer these plans only to preferred customers, but others offer them to everyone.

Ad

Qualification Process

Companies that extend deferred payment options to customers normally make use of some type of qualification process. For example, a customer might have a long-standing relationship with the seller and might have an excellent history of making payments. New customers might have to pass credit checks and other evaluations to ensure that they can meet all of the requirements of their payment arrangements. In both cases, it is not unusual for the deferred payment plan to not include interest charges if the balance is paid according to the terms of the plan. If a buyer fails to make payments as specified in the agreement, however, the seller might begin to apply interest charges to the outstanding balance.

Sample Deferred Payment Plan

A common deferred payment plan is one in which the customer does not need to make any payments and is not charged any interest for the first six months after the purchase. After six months, the customer could then pay the original amount in full or begin making smaller payments. If he or she chooses to make smaller payments each month, then interest typically will be added until the debt has been paid in full. For example, a person who defers payment when buying a piece of furniture that costs $600 US Dollars (USD) might be able to wait six months, then pay the full $600 USD or pay $50 USD, plus interest, each month for the next 12 months.

Ad

Discuss this Article

sunshine31
Post 2

Sauteepan- I had unsubsidized loans in college, but luckily I was able to pay them back in a reasonable time.

I wanted to add that I love the deferred payment options that some stores offer. I bought furniture last year this way and I loved it.

There were no payments or accrued interest for a year. But with these arrangements it is best to make equal installments and take advantage of the no interest timeframe because when the interest begins it is usually at a very high rate. Interest rates of 24 to 25% are not uncommon.

SauteePan
Post 1

I want to add that deferred student loans are another form of deferred payment. Deferred student loans can be subsidized or unsubsidized.

Unsubsidized student loans means that the deferred loan accrues interest when the loan is taken out, but the payment is not due until after the student graduates.

The subsidized student loan occurs when the government pays the accrued interest for the student until the student graduates and at that point the student begins making payment for the loan.

Post your comments

Post Anonymously

Login

username
password
forgot password?

Register

username
password
confirm
email