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Installment Transaction

Overview

What is an installment transaction?

  • The term "installment transaction" means a method of selling on credit, through which a seller of goods receives part of the purchase price at the time the goods are delivered and the balance thereof by installment payments over a fixed period.
  • The types of sales on installment basis can be divided into: (a) a contract under which a purchaser makes installment payments directly to the seller (e.g. three-month installment for books) and (b) a contract under which a purchaser makes indirect installment payments to a third person acting for the seller (e.g. three-month credit card installment payments).

Characteristics of Installment Transactions

  • Full or partial payment of the price is deferred to the future.
  • The amount deferred to the future is to be paid in installments.
  • Basically, the subject-matter is to be handed over to the purchaser simultaneously with the conclusion of the contract.
  • In many cases, the seller withholds the ownership of the subject-matter until its price is paid in full.

Characteristics of Installment Transactions

  • Full or partial payment of the price is deferred to the future.
  • The amount deferred to the future is to be paid in installments.
  • Basically, the subject-matter is to be handed over to the purchaser simultaneously with the conclusion of the contract.
  • In many cases, the seller withholds the ownership of the subject-matter until its price is paid in full.

Necessity to Protect Consumers in Installment Transactions

  • Consumers tend to fall into the temptation of making impulsive purchases, such as buying high-priced goods without taking their cash flow into consideration.
  • There is a potential that the seller may demand a contract, the terms of which are disadvantageous to a purchaser, such as charging excessively high interest for arrears in order to secure the claim of the price.
  • In cases of a standardized contract, the terms and conditions thereof are prone to be disadvantageous to purchasers by requiring strict trade conditions in cancellation of contract, penalty for breach of contract, etc.

Details

Scope of Application of the Installment Transactions Act

  • The Act is applicable to movable properties and services; and real estates such as land and houses, is excluded from the application thereof. Medicine and medical supplies, indurance, stocks, and promissory notes shall be excluded from the application of the Installment Transactions Act.
  • The cases where a purchaser enters into an installment contract for the purpose of commercial activities are also excluded from the application of the Act.

Obligations and Rights of Sellers

  • Indication of installment transaction and issuance of contract
    • In order to minimize the loss from an impulsive purchase, specific matters must be indicated for the purchaser to understand the terms of the installment contract and, at the time the contract is concluded, a copy of the contract must be provided, wherein specific matters are stipulated.
  • Right to rescind a contract
    • If a purchaser fails to make an installment payment, the seller may rescind the contract, and in such cases, he/she shall request the purchaser in writing to comply therewith within a fixed period of at least 14 days.
  • Limit of the amount of a claim for damages
    • The amount of a claim for damages a seller or a credit provider is entitled to claim for failure by the purchaser in complying with a payment obligation must not exceed 40% of the installment(s) in arrears.

Obligations and Rights of Purchasers

  • Right to cancel an order
    • A purchaser may cancel an order related to an installment contract within seven days from the date the contract is received or the subject-matter is delivered to him/her.
    • Where a purchaser cancels an order, he/she shall return the subject-matter delivered, and the seller shall return the installments already received.
    • Where it is deemed inappropriate to acknowledge the cancellation of an order, for such reasons as the subject-matter is destroyed or damaged due to a cause ascribable to the consumer, or due to the nature of the subject-matter, or in form of concluding the contract, the order cannot be cancelled.
    • The installment contract for which the installment price is under 100,000 KRW (in cases of using a credit card, under 200,000 KRW), or for the goods individually manufactured and supplide in compliance with a -purchanser's ordershall be excluded from the right to cancel an order.
  • Right of protest
    • Where any fixed ground exists, a purchaser may refuse to pay the balance of installments unpaid as at the time of exercising the right of protest against the seller or the credit provider
    • Grounds for protest
      • Where an installment contract has been invalidated, cancelled or rescinded.
      • Where all or part of the subject-matter has not been delivered or provided to the purchaser by the time of delivery stipulated in the contract.
      • Where the seller fails to comply with an obligation under the warranty.
      • Other cases where the purpose of the contract is impracticable to achieve due to the seller's default of an obligation, etc.