Question

The instalment scheme in which companies take \[4\] and \[5\] instalments in advance is called as:
A. \[25\% \] Finance
B.\[75\% \] Finance
C.\[100\% \] Finance
D. \[0\% \] Finance

Answer 1

Hint: Instalment scheme refers to the method of buying goods gradually. In this scheme a sum of money is paid in small quantities over a period of time. Regular payments are made by the buyer to the seller until the full price of the good is paid. The good belongs to the buyer only after paying the entire cost of the good. This method is also followed by banks in advancing loans.

Complete step by step solution:
In the instalment scheme the buyer buys the goods or takes loans from the bank on instalment basis. In this method he pays the price of the goods or repays the loan gradually in small amounts over a fixed period of time. The companies or banks that finance instalment schemes can charge different finance rates from the buyer.
In the case of \[0\% \] finance, the buyer/borrower is not obligated to pay any interest rate. This gives the borrower the chance to avail the privileges of borrowing money and spread the payments over a long period of time without paying any fee. The only interest collected in this case is the \[4\] and \[5\] instalments in advance.

Therefore, the correct option for the above question is option D. \[0\% \] finance.

Note: In these types of questions, it should be carefully noted that financial institutions have different policies of advancing these types of loans and different rates of finance. It is only when the financial institutions take \[4\] and \[5\] instalments in advance that they provide \[0\% \] finance. In other cases where advance instalments are not taken, interest rates are charged.