Consumer contract financing programs can be designed for all types of retail installment contracts and unsecured consumer contracts which traditional funding sources would shy away from. In house portfolios, ongoing consumer contracts or both of the above may be sold at a discount, with the funding source holding back a reserve, to cover potential defaults.
Offering financing to your customers leads to more sales and greater profitability. Consumer contract financing program creates an opportunity for your customers to not max out their credit card payments, thus enabling them to set aside credit for an emergency.
You may also want to think about whether you wish to sell all your consumer receivables on a monthly basis or only part of them.
Does your monthly cash flow necessitate selling all of your retail installment contracts or only a portion of them? If you are holding a portfolio of performing consumer notes, you may be asked if you would be interested in selling a portion of, or all of the portfolio of consumer notes. If you have a portfolio of consumer contracts, you may also be asked if you are interested in having that portfolio serviced by a funding source.
This can save you time and possibly money by freeing up your office personnel to perform other tasks. Installment Payments shall have the meaning set forth in Section 5 b ii. Installment Payment Date means the date on which an installment payment of an assessment is payable. Installment Due Date means, for any monthly installment of interest only or principal and interest, the date on which such monthly installment is due and payable pursuant to Section 3 of this Note.
Installment as defined in Section 2. Retail installment transaction means any transaction in which a retail buyer purchases goods or services from a retail seller pursuant to a retail installment contract or a retail charge agreement that provides for a time price differential and under which the buyer agrees to pay the unpaid balance in 1 or more installments.
Retail installment transaction does not include a rental-purchase agreement as defined in section 2 of the rental-purchase agreement act, PA , MCL Senior Principal Payment Amount For any Distribution Date on or after the Stepdown Date and as long as a Trigger Event has not occurred with respect to such Distribution Date, will be the amount, if any, by which x the aggregate Class Principal Balance of the Group 1 Senior Certificates immediately prior to such Distribution Date exceeds y the lesser of A the product of i Typically a memorandum, rather than the entire agreement, is recorded so as not to publicize the precise terms of payment or other private agreements of the parties.
Realty transfer tax is due upon recordation of a contract for deed or agreement for the sale of realty based upon the entire consideration paid under the agreement. The installment seller of real property not used in a trade or business can elect an installment method for reporting capital gain from the sale of property.
IRS Tax Topic provides an overview of the tax treatment of installment sales. IRS Publication provides more detailed guidance including how to calculate gross profit from the transaction, the gross profit percentage to be applied to each installment and sales income. Payments received by the installment seller during each tax year are, for tax purposes, comprised of three components: interest income either stated or imputed at the applicable federal rate , which is subject to tax at ordinary income rates; tax-free return of adjusted basis in the property; and gain on the sale, which is subject to tax at capital gain rates.
IRS Publication provides a detailed explanation of the tax implications of installment sale as applied to a farm property. Spreading out the tax burden over a period of years can provide tax, estate and financial planning opportunities for the seller who is willing to accept payment of the purchase price over two or more tax years, whether by seller take back financing or by installment payment financing. Whenever a taxpayer can defer a tax liability at no cost to taxpayer, that is an economic benefit—the taxpayer has money to invest in the interim that would otherwise have been paid to the U.
Whenever a taxpayer can use losses to offset taxable gain or use deductions to offset taxable income, it is an economic benefit to the taxpayer. Both seller take back financing and installment payment financing can defer recognition of gain into future tax years when the taxpayer may anticipate substantial tax losses or deductions, perhaps for contribution of a conservation easement; or the taxpayer may anticipate a diminution in income, perhaps by retirement; or an elderly taxpayer may want to defer a balloon payment for a sufficiently long period so that it is taxable, if at all, as part of his estate.
If the balloon payment is deferred for a number of years, a series of gifts to family members could result in the balloon payment being paid to them rather than seller.
This may result in a substantial tax saving if, as a result of the gifts, payments are made to family members in lower tax brackets than seller. For example, rather than designating a five-year fixed term, the installment agreement may provide for a term of 30 years but with an option on the part of the seller to require payment in full after five years and, if the seller does not exercise the option at that time, each five-year interval thereafter.
If the seller does not exercise the option, then regular payments continue until the next option to require the balloon payment. A seller is probably more likely to provide a conservation organization with long-term financing if the seller has an option to require full payment as described above should his financial circumstances change.
Of course, the conservation organization should negotiate for a substantial notice period so as to be in a position to find substitute financing if needed. Installment agreements are frequently used as a vehicle to support economic development through issuance of tax-free municipal bonds. Ownership of the project is vested in a governmental entity, typically an industrial development authority, which enters into an installment agreement with the private company who will have all of the rights of beneficial ownership of the project.
Bonds are issued by the industrial development authority and sold on the public market to raise funds to acquire the project. These bonds bear interest at a lower rate because the income is tax-free to the bondholder. Installment payments from the private company to the governmental entity under the installment agreement are used by the governmental entity to pay the principal and interest due to the bondholders under the terms of the bonds. Government funders of conservation projects can use the installment structure to spread out payments over time.
Funds derived from the sale of tax-free municipal bonds can be used to fund conservation acquisitions over a period of years. The bonds can also be issued to the owner in lieu of cash payment of the purchase price. Lease-purchase and contract for deed transactions have been used for many years by unscrupulous operators to cheat vulnerable segments of the population.
While this act may not be applicable to a particular transaction, an installment buyer is well-advised to include in the installment agreement protections similar to those provided in the act, in particular: the disclosures that the installment seller is required to make; provisions for periodic accounting by sellers of the application of payments; and limitations on remedies to avoid forfeiture of payments previously made.
The on-line edition also contains the most up-to-date listing of related library items and guides. Patricia L. Pregmon , attorney at law, is the primary author, and Andrew M. Loza , the contributing author and editor. Nothing contained in this or any other document available at ConservationTools. The material presented is generally provided in the context of Pennsylvania law and, depending on the subject, may have more or less applicability elsewhere.
There is no guarantee that it is up to date or error free. Text may be excerpted and reproduced with acknowledgement of ConservationTools.
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