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What is Installment Buying?

Malcolm Tatum
By
Updated May 16, 2024
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Installment buying is a type of loan or credit buying in which the buyer agrees to make regularly scheduled installment payments to the seller. Depending on the terms of the purchase agreement, the buyer may or may not be required to provide the seller with any type of down payment on the front end. There are several different types of installment buying, including the use of layaway plans, in-house financing on furniture, and even buying cars or homes.

The basic approach to installment buying involves a seller agreeing to enter into a transaction with a buyer that does not require the entire purchase price to be paid up front. Instead, the amount owed, plus any applicable interest, is divided into a series of payments that the buyer agrees to remit on a regular basis, usually monthly. Depending on the terms of the purchase agreement, the buyer is then granted possession of the product purchased and is free to use it as he or she wishes. In the event that the buyer should default on the installment buying plan, the seller may take action to repossess the product as a means of partially recouping losses from the transaction.

One notable exception is that with layaways, consumers normally do not take possession of the purchased products until the debt is retired in full. At one time, this approach was often used to finance the purchase of major appliances for the home as well as securing goods for use as holiday gifts. Once the terms of the installment plan were fulfilled, the store would release the purchased goods to the buyer, and arrange delivery if necessary. While the use of credit cards to purchase goods is a more common approach today, this form of installment buying is still offered by a limited number of large retail chains, and is sometimes provided by locally owned stores and shops.

The purchase of a vehicle is one of the most common examples of installment buying today. With this strategy, a qualified buyer is extended financing for the purchase. Interest is applied to the principal of the loan and the total is divided into a series of monthly installment payments. Once all the payments are remitted, the lender relinquishes any claim on the collateral used for the loan and the owner has sole possession of the vehicle.

A mortgage is also a form of installment buying. Typically, the lender requires that the buyer make a deposit or down payment on the property that is being purchased. The remainder of the balance due is financed and a series of monthly installments are paid until the debt is settled in full. With installment buying of this type, the lender may extend a fixed or variable rate of interest on the total balance of the loan. Debtors may sometimes refinance a loan of this type when interest rates fall below the current rate applied to the loan, making it possible to lower the amount of the monthly installment payments.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
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Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
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