The vast majority of automobiles sold in the United States are sold on the time payment plan. The purchaser does not pay cash. In most cases he trades in his present car as a down payment and the balance is financed over a period of months, sometimes as long as four years or even longer. The alterna tive method of payment is, of course, cash, and early in the history of the auto mobile industry cars were sold only for cash. The trouble with a cash payment requirement for a car is that few people can pay out $4,000 all at once. The question immediately arises as to why a person does not save up his $4,000 first and then when he has accumulated it buy his car, and not until then. The theory is good, but in practice most people cannot accumulate such a sum. Other things come along to attract buyers and they yield to the desire of the moment with the result that away go their savings.

When a person is required by contract to pay (and this payment really amounts to saving) he generally pays. The alternative is the loss of his car and all of the savings that went into the car. The theory behind time sales is, in addition to the part described above, “Pay as you use the car.” Your time pay ments roughly cover how much of the car’s value disappears over a period of months and years. Of course the payments must exceed this depreciation in value or else in the event the buyer does not make his payments and defaults to the finance company or bank, the value left on the car, which the finance com pany seizes, is less than the amount owed by the purchaser, and therefore the finance company loses. Investment - Read More.