Commutation

Posted in Finance, Accounting and Economics Terms, Total Reads: 269
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Definition: Commutation

Commutation as the name suggests is a way of alternating the payment mechanism. Which is to say changing the way of payment mechanism from one to another.

 

While making payment for one purpose or another you may, later in time, think of making payment in some other way. Which is say you were about to make the payment in lump sum, or in instalments, but now you want to change the method of payment. You now want to pay in instalments, or change it to instalments.

 

Example:

Say, you have taken a loan and have been making payments from quite some time. Now somehow the year had been profitable for your business and you’ve got money and want to just pay the whole remaining amount in just one payment. Now this change in the way of payment from the normal way would be called commutation of loan. Same way commutation of pension is possible.

 

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