§ 7.03 Characterizing Installment Purchases

• Jurisdiction: United States
• Publication year: 2021

§ 7.03 Characterizing Installment Purchases

[1]—Definition

An installment purchase is a purchase transaction where the buyer promises to pay some or all of the purchase price in future installments. Installment purchases must be distinguished from credit purchases.⁴¹ In an installment purchase, the buyer merely contractually obligates himself to make payments in the future. No promissory note is signed. In addition, pursuant to a credit purchase, title generally passes when a promissory note is signed. In an installment purchase, title does not pass until the last payment is made. Although the distinctions based upon when title passes and whether there was a contractual commitment to pay installments or a promissory note may appear technical, the differences can have significant characterization ramifications.

[2]—Inception of Title Approach

Pursuant to the inception of title approach,⁴² property purchased in an installment sale is characterized based upon the consideration given when the installment contract was signed. Later payments have no effect upon ownership, although later payments can create reimbursement rights.⁴³

[3]—Time of Vesting Approach

Under the time of vesting theory,⁴⁴ property is characterized based upon the consideration given when the rights...