Legal Definitions - time-price differential

time-price differential

The time-price differential refers to the additional amount a buyer pays for an item when purchasing it on credit or through installment payments, compared to the lower price offered for an immediate cash payment. It represents the extra cost associated with the convenience of delaying payment over time, essentially reflecting the seller's charge for extending credit.

• Example 1: Car Purchase

  A car dealership advertises a new sedan for a cash price of $28,000. However, if a customer chooses to finance the car through the dealership's credit program, the total amount paid over the loan term, including all interest and financing charges, comes to $32,500.

  This scenario illustrates a time-price differential of $4,500 ($32,500 - $28,000). This is the additional cost the buyer incurs for purchasing the car on credit rather than making an immediate cash payment.

• Example 2: Appliance Store Installment Plan

  A local appliance store offers a washing machine for $900 if paid in full at the time of purchase. Alternatively, customers can opt for an in-store installment plan where they pay $80 per month for 12 months, totaling $960.

  Here, the time-price differential is $60 ($960 - $900). This is the extra amount the customer pays for the convenience of spreading their payments over time instead of making a single cash payment.

• Example 3: Online Retailer's "Buy Now, Pay Later" Option

  An online electronics retailer lists a high-end tablet for a direct purchase price of $700. They also partner with a "buy now, pay later" service that allows customers to pay for the tablet in four bi-weekly installments, but the total amount charged through this service is $735.

  The $35 difference ($735 - $700) is the time-price differential. Even if advertised as "interest-free" installments, the higher total price reflects the cost associated with the delayed payment option, which the retailer or financing partner charges to cover the risk and administrative costs of extending credit.