What Is Purchase on Credit? Definition of Purchase on Credit, Purchase on Credit Meaning and Concept
A credit purchase is a type of transaction by which a buyer acquires a good or service in exchange for future financial compensation.
Through the credit purchase methodology, it is possible to buy different goods and services, postponing their corresponding payment over time.
In this sense, these types of purchases establish a certain deferred calendar of future payments.
Although these are usually made in a single movement, there are also periodic payment alternatives such as those established for example in bank loans or mortgage loans.
The role of interest rates or commissions is remarkable in this type of transaction, commonly causing an increase in the price of the good or service compared to other forms of purchase on the spot.
Common types of credit purchases
Taking into account the aforementioned, the purchase on credit can be developed in a different way according to the following characteristics:
- Single payment establishment : Payment due is instantaneous, since the purchase is paid on the spot.
- Defer by installment payment : In certain cases the purchase can be assumed by establishing a series of installments or terms.
In the latter case, it is more common for sellers to apply an interest rate based on late payment.
In this sense, it is common for certain companies to prioritize this type of credit and installment sales by ensuring a higher level of income derived from said interests.
Importance of buying on credit
Often these types of purchase operations are directed to large outlays of money or the need for a large level of financing. Examples of these reasons are the purchase of cars, appliances or real estate, among many others.
On the other hand, it is common for banking or financial entities to offer their clients instruments aimed at promoting this type of commercial activity.
The most common is that of credit cards that allow you to defer payments according to an endorsement by the bank.