Legal Definitions - add-on clause

An add-on clause is a specific term found in an installment contract, which is an agreement where you pay for an item over time rather than all at once. This clause states that any items you purchased previously from the same seller under the same or a linked financing agreement will serve as collateral (or security) for any new items you buy from them on credit.

In simpler terms, if you buy something new on credit from a store that uses an add-on clause, your older purchases from that same store (which you might still be paying for) are now also at risk if you fail to make payments on the new item. If you default on any part of the combined debt, the seller could potentially repossess all items, both old and new, until the entire outstanding balance is paid.

Here are a few examples to illustrate how an add-on clause works:

• Imagine you buy a new refrigerator on a store's financing plan, agreeing to make monthly payments. Six months later, you decide to purchase a matching freezer from the same appliance store, adding it to your existing financing account. If your contract includes an add-on clause, your previously purchased refrigerator now also acts as security for the debt you owe on the new freezer. This means if you stop making payments on the freezer, the store could potentially repossess both the freezer and the refrigerator, even if you had been diligently paying for the refrigerator up until that point.

• Consider a customer who buys a living room sofa set from a furniture store using the store's in-house credit plan. A year later, they return to the same store and purchase a dining room table and chairs, adding it to their existing credit account. Due to an add-on clause in their agreement, the sofa set (the earlier purchase) now also secures the debt for the dining room furniture (the new purchase). Should the customer fall behind on payments for the dining set, the furniture store would have the right to repossess both the dining set and the sofa set to cover the outstanding debt.

• A consumer purchases a high-definition television from an electronics retailer on an installment plan. A few months later, they decide to upgrade their sound system and buy a soundbar and speakers from the same retailer, using the same credit account. If an add-on clause is part of their financing agreement, the television (the earlier purchase) becomes collateral for the new sound system. This arrangement means that if the consumer defaults on payments for the sound system, the retailer could repossess both the sound system and the television to satisfy the debt.