If a pre-arrangement is cancelled, which amount must be refunded to the customer?

• A. Only the principal
• B. None of the money is refunded
• C. All money paid prior to merchandise or services being rendered, plus interest
• D. The entire amount with no interest

Answer: (C)

When a pre-arrangement is cancelled, you’re entitled to a full refund of the money already paid, plus interest. This means the seller must return all funds that were paid before any merchandise or services were provided, and also pay interest on those funds because they were held or invested while the contract was in effect. Any money that hadn’t been paid yet isn’t part of this refund. So the correct approach is to refund all money paid to date, plus the interest earned on those funds.