Consumers who purchase on credit have rights which they often give up without even knowing it. These rights are included in a "Retail Installment Contract," which is an agreement between the buyer and the seller, and which deals with the payment terms.

Suppose you went into a store to buy a refrigerator. The cash price for the appliance is more money than you have, so you ask the seller about credit terms. He tells you that by financing the refrigerator through him, there will be no downpayment, and you can pay a certain amount of money each month for 24 months. At the end of that time, you will have paid the seller the total cost of the refrigerator, plus a charge for financing. This charge is based on an annual percentage rate. Since you have already shopped around, you decide that his price is fair, his credit terms are reasonable, and his reputation good. After reading the "Retail Installment Contract," you may decide to make the purchase on his credit terms.

At this pont, your rights in the contract are between you and the seller, and deal specifically with the purchased appliance. Read it carefully.

But often, after you make your first or second payment to the refrigerator seller, you'll get a notice from a finance company telling you that you should make your future payments to them. The seller has assigned your contract to the finance company, which means that he has sold it to them so that he could get a lump sum of cash at once. The finance company usually pays less for the contract than even the cash price of the refrigerator; but the seller has his money immediately, and the finance company can make money when you pay them the finance charges. This is also a source of new customers for them.

So far, your rights, as under the original Retail Installment Contract, have not been changed. But it is important to understand that your contract has gone from the seller to a finance company, because that step is what could lead to your losing certain rights in the contract.

After you make your next few payments on time, you may start getting letters from the finance company suggesting a "Bill Consolidation" loan. Such a loan would take all of your Retail Installment Contracts, and possibly other bills, and combine them into one bill, with one monthly payment. Sometimes, you are told that the one monthly payment will be lower than the amount you are now paying.

It is the finance company's business to loan money, and so they might approach you for a bill consolidation loan without you ever having even requested information about one. It is important to realize that this new contract is a personal loan contract between you and the lender. The original Retail Installment Contract and the old seller are no longer a part of this, and here is where you give up certain rights concerning your purchase of the refrigerator.

One such right is that under the Retail Installment Contract anyone to whom the seller assigns or sells your contract is still subject to the same defenses you had against the seller. If something goes wrong with the refrigerator, the seller and the assignee both are subject to this defense. But with a personal loan contract, the lender has no responsibility should something go wrong with the appliance. But you, as the buyer, are still personally indebted to the lender who has loaned you money to pay the seller off.

A second right you have under a Retail Installment Contract is that no lien or security interest can be taken by the seller in any property other than that originally pledged in the contract. However, in a loan contract a lien or security interest usually is taken in property other than that which was originally purchased. Often, the family car and all the household furniture become security for the loan, whereas only your refrigerator (or whatever items are being paid off) was security in the Retail Installment Contract.

Finally, under a Retail Installment Contract, there is a limit on the finance charges. But a loan contract, the finance charges the lender can charge may be more than can be charged on Retail Installment Contracts.

Remember that, for the "privilege" of consolidating Retail Installment Contracts, you give up certain important rights, and in addition, it almost always costs you more money.

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