Installment sales and credit sales are quite similar, in that each provides a way for goods to be delivered and payment to be deferred. The key differences are time to repay and collateral. A credit sale is a short-term payment deferral option, while an installment sale is generally stretched over years.
Credit sales are a way businesses can offer customers a payment deferral option for a short period of time. The typical time frame for a credit sale is 90 days or less. Oftentimes, a discount is given on a credit sale if full payment is received within a specified number of days. For example, if a company purchases inventory from a manufacturer in a credit sale with a 5/10 net 30 term, this means the company has 30 days to make the full payment; however, if payment is received within 10 days, the customer receives a 5 percent discount. A credit sale is also final, and ownership of the goods is transferred at the point of sale. There is no lingering interest from the seller.
Installment sales also allow deferred payment but do not offer discounts for early payment. Installment sales encompass much longer time periods, and the seller maintains an interest in the goods sold until the balance due is received in full. For example, if a car is purchased from a dealer under a retail sales installment contract, the buyer makes payments on the vehicle directly to the dealer. The customer also names the dealer as an interested party on the title, so it is held for collateral. If the customer stops making payments, the dealer can repossess the vehicle as immediate payment.