Definition of Deferred Payment Option: Deferred payment options refer to the delay or defer in the payment of investment until the next date. These payment methods are a type of exotic option in the options market because they have greater illiquidity and complex structuring than their simple counterparts. Many investment instruments are designed with a deferred payment option in the investment market. Most of these options focus on retirement investing.
Many forms of money can act as examples of deferred payment, including representative money, fiat money and commodity money. Fiat and representative money usually exist in digital form along with the physical token, including notes and coins.
These payments usually have certain advantages to returning or paying upfront (such as avoiding opportunity costs or gathering interest), which the purchaser of that particular option will generally pay.
Relation To Debt
Debt is a type of deferred payment. The standard of deferred payment is the value in which it is denominated in.
The real value of deferred payments fluctuates in the same way as the value of money (can be gold, dollars or others) varies over time by deflation and inflation. A token is named as legal tender if it serves to pay off debts. Thus gold or other commodity does not back U.S. greenbacks (dollars), they derive their value from being legal tender.
Examples
Deferred payments follow the rule of law and excitability of debts. It is sometimes or never used when the mortgages are unlikely to be payable. For some particular types of transactions such as for drugs, illegal goods or weapons, diamond or gold are preferred as the medium of exchange.
How Deferred Payment Options work
These payment options delay the payment until a next date making the investor receiving amounts to plan for more significant illiquidity than conventional investment. They are usually considered as a type of exotic option in the options market due to their alternative market trading and complicated structuring.
The long-term advantage of deferred payment broadly attracts many investors and investment industry to invest in this payment vehicle. In some cases, the creditor also provides this payment option to the purchaser under particular circumstances such as academic studies or hardship.
Deferred Payment Investments
There is a wide range of investments in the monetary market that grants deferred payment to the investors. The most common among them is delayed payment annuities which allow the investor to receive continuous pay-outs and make contributions over a duration of time.
IRAs (Individual retirement accounts) are also part of this list because they grant planned pay-outs after a particular date.
Deferred Payment Billing
Delayed payment also works as an option for different cycles of billing.
The academic loan is a credit instrument that grant deferred payments to the students. The amount of these loans begins after they graduate.
Usually, the deferred payment option may be a warning or hint that many creditors give to their customers, giving them extra time for saving and meeting their obligations.
