How To Write an Installment Sales Contract

Standardized Legal Documents How To Write an Installment Sales Contract

Finance-Free Deals Are Achievable With an Installment Sales Contract

Whether you are buying or selling, the deal is made or broken by the buyer’s ability to pay the agreed amount.

If the buyer has difficulty raising finance, an alternative is to sign an installment sales contract.

We know that setting up a contract is a daunting task that can get costly if you leave it up to a lawyer. DoNotPay can help you draft an installment sales contract that gets the deal done safely and without hassle!

What Is an Installment Sales Contract?

An installment sales contract is an agreement between two people to buy something and pay for it in installments over a fixed period.

You can use an installment sales contract for buying or selling:

There are numerous advantages to installment sales contracts both for the buyer and the seller, namely:

Buyer or Seller


SellerThe advantages for the seller are:

  • Wider pool of potential buyers
  • Deals can be made quickly
  • Interest can be accrued in addition to the sale price
  • The seller retains legal ownership but relinquishes equitable ownership responsibilities
  • The seller may be able to defer capital gains to a later tax year and keep income within a certain tax bracket
BuyerThe benefits to the buyer are:

  • No need to apply for a mortgage or loan
  • Bad credit history does not have an impact
  • Tax breaks associated with ownership can be taken advantage of
  • Expensive items and capital investments can become affordable

How Does an Installment Sales Contract Work?

The buyer and the seller agree on the following:

  • The final price for the item being sold
  • The payment period
  • Any down payment amount
  • The interest rate the buyer will charge

Once these terms have been agreed, the two parties sign an agreement. The agreement may stipulate an initial down payment, which the buyer pays upfront, following which the buyer pays the agreed installment each month until the full amount plus interest is paid off.

The buyer takes equitable ownership of the item bought as soon as the contract is signed and the down payment is made. This means that the buyer becomes responsible for any fees, taxes, licenses, or maintenance costs for the item bought.

The seller retains the legal ownership of the item, though, and this is only transferred once the final installment has been paid. If the buyer defaults on any of the installments, the seller can take steps to retrieve the item, and the buyer loses any installments that have already been paid.

What Needs To Be Included in an Installment Sales Contract?

You need to include the following points in an installment sales contract:

  1. Names and details of the buyer and seller
  2. Description of the item
  3. Inspection of the item
  4. Full price of the item, installment amounts, and number of installments
  5. Interest rate
  6. Closing costs
  7. Terms of possession
  8. Governing law

Names and Details of the Buyer and Seller

You should include the full names, addresses, and contact details of both parties to the agreement.

Description of the Item

If the deal concerns real estate, you should list the:

  • Full address
  • Plot details (as noted on the property deed)
  • Exact location
  • Appearance of the property

If the item being transacted is anything else, you should note the:

  • Manufacturer
  • Model name or number
  • Serial number or VIN
  • Color, external appearance, or any identifying marks

Inspection of the Item

The agreement should state that the buyer has inspected the item, noted any faults, and accepts the item “as seen.” In the case of a property transaction, the buyer should have the inspection carried out by a qualified building inspector.

Full Price of the Item, Down Payment, and Installment Details

Having agreed on a purchase price, you should capture it in the contract, together with any down payment amount, the amount payable in each installment, and the number of installments to be paid. The total amount should include interest, taxes, and any other costs to be borne by the buyer.

Interest Rate

You should note the interest rate to be charged and stipulate that the rate is fixed for the duration of the agreement. As the seller, you can insist on a variable interest rate, but this is likely to cause complications in calculating the monthly installment amounts if the interest rate changes. The easier route is to offer a fixed interest rate.

Closing Costs

In property deals, there will be costs for the deed transfer after the final installment has been paid. Other items may require a written transfer of ownership document. The buyer and seller need to note who will be responsible for these costs.

Terms of Possession

The buyer and seller should agree on the date on which the buyer will take possession of the item. This will normally coincide with the date the contract is signed and the down payment made.

Governing Law

The agreement should note the state law under which it is governed.

Once the agreement is drafted, the buyer and the seller sign it in the presence of a notary to seal the deal.

DoNotPay is your go-to resource for creating safe and effective legal documents. Read on to see what else we can do to help!

How Can DoNotPay Help Me Write Contracts and Other Documents?

If you use the guidelines above, you should be able to draw up an installment sales contract that covers all the bases.

We want to help you avoid expensive lawyers when you need legal documents or contract templates, so we have produced a range of documents you can customize to your requirements.

Here’s what you need to do to get the document you need:

  1. Sign up with DoNotPay in your web browser
  2. Search for the document you want
  3. Insert the details you need included
  4. Wait while we generate your custom document

What Kind of Legal Documents Can DoNotPay Offer?

Our range is expanding all the time, and here are a few of the documents we offer:

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