A terms contract, also known as a purchase agreement or a land contract, is a legally binding agreement between a buyer and a seller for the sale of property or goods. In this type of contract, the seller agrees to transfer ownership of the property or goods to the buyer, while the buyer agrees to pay the purchase price in installments over a set period of time.
Terms contracts are commonly used in real estate transactions, particularly for properties that may not qualify for traditional financing, or for buyers who may not be able to secure a mortgage. In these cases, the seller may finance the transaction and become the lender, with the buyer making payments to the seller over the course of the contract.
The terms of a terms contract typically include the purchase price, a down payment, the length of the contract, the interest rate, and any other relevant conditions agreed upon by both parties. The contract will also outline the consequences of default or non-payment by the buyer.
One of the advantages of a terms contract for buyers is the ability to purchase property or goods that they may not be able to afford upfront. Additionally, they may be able to avoid the stricter credit requirements of traditional lenders. For sellers, a terms contract can be a way to sell a property or goods in a slow market or to generate passive income through interest payments.
However, there are also risks associated with terms contracts. The buyer may end up paying more in interest or other fees than they would with traditional financing, and the seller may face the risk of default by the buyer. It is important for both parties to carefully review and understand the terms of the contract before entering into it.
In conclusion, a terms contract is a legal agreement between a buyer and a seller for the sale of property or goods, with payments being made in installments over a set period of time. While it can be a useful option for both buyers and sellers, it is important to fully understand the terms and risks involved before entering into a contract.