Some of the earliest forms of consumer credit were installment loans. These loans were commonplace in the United States since around 1850 with sewing machine financing and really began to catch on. Women were the most enthusiastic about the advent of sewing machines on easy credit. Before the sewing machine it took on average fourteen hours to make a shirt and with a sewing machine, just one hour. It was a huge labor saving device and by 1890 the price of the machine had dropped to about $30 or $40 if you financed it. The financing plan offered by Singer was simple, " dollar down, dollar a week".
In 1882 a German-American housewife wrote to the New Yorker Volks-Zeitung newspaper and said "I buy everything on credit until I get no more, then I go to another store and do the same there." Consumers loved credit.
Furniture dealers also quickly embraced installment sales. An 1899 study In Boston found that half of the city's furniture dealers were already selling on installments. Around 1900, with the advent of automobile financing, installment sales exploded and just seven years latter, installment transactions were much more common for other items and were used to commonly finance sewing machines, radios, electric refrigerators, phonographs, washing machines, vacuum cleaners, jewelry and clothing.
Henry Ford was producing record numbers of Model T cars and trucks but financing from Ford was not available. In 1916 the car cost the average wage earner almost half a year's income. Auto financing developed because the first wave of car purchasers were beginning to sell their used vehicles and buyers needed help to purchase them. New car buyers also needed assistance to aquire their vehicles so third-party finance companies appeared to borrow funds from banks and finance car purchases. By 1924, 75% of automobiles were purchased with installment loans.
Note credit advertisement in background.
Western History/Genealogy Department, Denver Public Library
Approximately 80% of phonographs were sold using installment debt, 75% of washing machines, 65% of vacuum cleaners and 25% of all jewelry sales.
Popularity of Items Purchased Using Installment Payments:
- Automobiles
- Household Furniture
- Pianos
- Sewing Machines
- Phonographs
- Washing Machines
- Radio Sets
- Jewelry
- Clothing
- Tractors
- Gas Stoves
- Electric Refrigerators
- Vacuum Cleaners
- Farm Equipment
- Improvements to Buildings
It is amazing to read about the early warnings of installment debt from merchants. Even though the warnings were issued, Americans had already had a taste of the "good life" and it was impossible to stop the growth.
One fact which has passed many by, it is simply not true that the invention of consumer credit was the invention of the indebted American. A river of red ink runs through American history.
In 1927 the text "Social and Economic Consequences of Buying on the Instalment Plan" was published by Wilbur Plummer, Ph.D. from the University of Pennsylvania
You can review key sections of that text which include sections on:
- What is an Installment Plan
- Origion of Installment Loans
- Advertising and High Pressure Salesmanship
- The Classes or Groups of People Using Installment Credit
- Instalment Buying Is Not Conducive to Saving
- The Effects of Installment Buying on the Character of the Individual
History Moment
Early Installment Agreement
July 18 and August 30, 123 A.D
Demetrios, son of Alkimos, to Zoilos, son of Ouetis, greeting. I have received from you, as an instalment on what you owe me, one hundred silver drachmai, without any loss to me with respect to the remainder, in accordance with the written agreement which I have from you. The seventh year of the Emperor Caesar Trajan Hadrian Augustus, Epeiph 24. (2nd hand) And on the first day of the month Thoth of the 8th year of Hadrian Caesar the lord, through Neilos, another hundred silver drachmai, without any loss to me with respect to the remaining hundred drachmai, and a half-kados of radish oil. I shall receive the remainder in the current month. If I do not receive it, I shall get interest on the remainder from the month Phaophi. The 8th year of the Emperor Caesar Trajan Hadrian Augustus, Thoth 2..
