Conditional Sale AgreementCredit Repair Definition
A financing contract where the buyer possesses goods, but ownership (title) remains with the seller until full payment is made.
Definition
A conditional sale agreement is a financing arrangement, often used for purchasing expensive goods like vehicles or equipment, where the buyer takes possession and use of the goods immediately, but the seller retains legal ownership (title) until the buyer completes all required payments. It functions like a secured loan where the goods themselves serve as collateral. If the buyer defaults on payments, the seller can repossess the goods because they still hold the title. Once the final payment is made, the condition (full payment) is met, and the title transfers to the buyer. These agreements outline the payment schedule, interest rate, and consequences of default.
Frequently Asked Questions
How is a conditional sale different from a regular loan or lease?
In a regular secured loan (like a chattel mortgage), the buyer typically receives title immediately, but the lender places a lien on the title. In a lease, the lessee pays to use the goods for a period but usually doesn't intend to own them (though lease-to-own options exist). In a conditional sale, the buyer intends to own the goods but only gains title after fulfilling the payment conditions.
What happens if the buyer defaults under a conditional sale agreement?
If the buyer defaults on payments, the seller, still holding the title, has the legal right to repossess the goods. The specific procedures for repossession are governed by state laws and the terms of the agreement. The seller may also be able to sue for any remaining deficiency balance after repossession and resale.
Are conditional sale agreements common for consumer purchases?
While historically common, true conditional sale agreements (where the seller retains title) are less frequent for typical consumer goods today in many jurisdictions, often replaced by standard secured loans where the buyer gets title subject to a lender's lien. However, the concept is still relevant in commercial transactions and for certain types of consumer financing like rent-to-own agreements or some vehicle financing structures.
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