Installment Sales Contracts

Concept and Subject Matter

According to TCO Art. 253/I, an installment sale is a type of contract whereby the seller undertakes to deliver the movable property sold before the full price has been paid, while the buyer undertakes to pay the sales price in parts. Based on this definition, the subject matter of the contract may consist only of movable property. The provisions of TCO Arts. 253 et seq. do not apply to immovable or intangible assets (such as trademarks, patents, or licenses); in such cases, the general provisions of sale or credit agreements shall govern^[4].

The installment sale contract is essentially aimed at providing credit to the buyer. In this respect, it is closely related to credit card installment transactions, financing agreements, or prepaid sales. Nevertheless, these contract types are separately regulated under the LPC.

Elements

Delivery and Time of Payment:

Under an installment sale, the seller is obliged to deliver the movable property before the full purchase price has been paid. The timing of the transfer of ownership depends on the parties’ intention, as no mandatory rule exists in the TCO^[5]. TCO Art. 253 refers to the “delivery” of the movable; however, even if the parties agree on a method of transfer other than physical delivery, this does not affect the installment nature of the contract. The seller’s obligation to perform prior to full payment pertains to the delivery of the goods, not to the transfer of ownership itself. Hence, transferring ownership before full payment is not a structural element of the installment sale contract.

Number of Installments and Payment Term:

According to TCO Art. 253/III, the number of installments must be at least two. TCO Art. 256/I further provides that the total payment period may not exceed three years. However, this limitation has been lifted under LPC Art. 17, thereby allowing flexibility for longer installment plans in consumer contracts. Accordingly, installment sales with payment periods exceeding three years are permissible for consumer transactions.

Down Payment:

Under TCO Art. 256/II, the buyer must pay at least one-tenth of the cash sale price at the time of delivery. This percentage may be reduced by half or increased twofold by a Presidential Decree. As of 2025, no new amendment has been made to this provision; thus, the 10% threshold remains in force^[6]. Any increase in the sale price in consideration for waiving the down payment is void under TCO Art. 256/IV. If the seller delivers the goods without receiving the agreed-upon down payment, they lose the right to claim the unpaid portion of that down payment (TCO Art. 256/III).

Financing Element:

The essence of the installment sale is to provide financing to the buyer. The seller acts as the financing party. Therefore, under the LPC, where the person or entity providing financing acts in a professional capacity, such agreements qualify as consumer transactions.

Form and Content Requirements

Installment sale contracts are valid only if made in writing (TCO Art. 253/II). Both parties must sign the contract. For goods falling within the seller’s commercial activities, TCO Art. 253/III requires the following elements to be included:

• Names and addresses of the parties,
• Description of the goods sold,
• Cash sale price,
• Additional price payable due to installment payment,
• Total sale price,
• Amount and due dates of down payment and installments,
• Explicit information on the right of withdrawal,
• Reservation of title clause, if any,
• Default interest rate (which, following the 2022 amendment, must not exceed 50% above the legal interest rate),
• Date and place of the contract.

If any of these elements are missing, the contract shall be null and void^[7].

For consumers, LPC Arts. 4–5 further impose a pre-contractual information duty. The seller must inform the consumer, before the conclusion of the contract, about the total debt, interest rate, withdrawal period, and conditions of return.

Right of Withdrawal

Under TCO Art. 255 and LPC Art. 18, the buyer (consumer) may withdraw from the contract within seven days without providing any justification. Following the 2022 amendment to the LPC, this withdrawal period is extended to fourteen days if pre-contractual information has not been duly provided.

The withdrawal notice may be made in writing or through a durable medium (e.g., e-mail). The seller may not demand payment of the down payment before the withdrawal period expires. Upon withdrawal, the parties are obliged to return what they have received; the seller may not claim compensation for depreciation caused by the ordinary use of the goods.

Default and Termination of the Contract

Under TCO Arts. 259–260, if the buyer defaults in paying the down payment or the installments, the seller has several options: the seller may demand only the due installments or the entire remaining balance or may rescind the contract.

For the seller to validly rescind the contract:

The right of rescission must be expressly reserved in the contract; and

The buyer must have failed to pay two consecutive installments amounting to at least 10% of the sale price or a single installment representing 25% of the total price (TCO Art. 259/II).

Before rescinding, the seller must grant the buyer at least 15 days to perform (LPC Art. 18/5). Upon rescission, the seller may claim compensation for extraordinary depreciation of the goods but not beyond the profit that would have been obtained if the contract had been performed (TCO Art. 260).

If a penalty clause is stipulated, it may not exceed 10% of the cash sale price (TCO Art. 260/III).

Competent Court and Arbitration Prohibition

According to TCO Art. 262 and LPC Art. 83/2, the consumer cannot waive in advance the jurisdiction of the court located in their place of residence. Arbitration clauses are not permissible in consumer transactions. Therefore, disputes arising from installment sales contracts shall be heard by Consumer Courts.

Conclusion

As one of the credit-based sale types, the installment sale contract was formerly regulated in only two articles under the previous law. The TCO now provides a comprehensive framework under Arts. 253–263, reflecting the widespread use of installment sales in practice despite their potential risks to buyers. Given their prevalence and the need for economic balance, these contracts have been subject to detailed mandatory rules^[8].

Installment sales contracts are hybrid in nature, lying at the intersection of obligations law and consumer law. The provisions of the TCO preserve the fundamental structure, while the LPC introduces more detailed protections for consumers.

As of 2025, the current legal framework emphasizes the principles of transparency and information disclosure, recognizing the buyer’s economically weaker position. Accordingly, businesses engaging in installment sales must comply with the form requirements, disclosure duties, and interest limitations prescribed under both the TCO and the LPC^[9].