Retail Installment Contracts in New Jersey

Purchasing items like cars or large appliances in New Jersey often involves signing a retail installment contract. This agreement allows consumers to pay for goods over time but includes legal obligations and financial implications. This article outlines aspects of retail installment contracts in New Jersey, detailing consumer rights and responsibilities under state law.

Mandatory Contract Terms

New Jersey law, under the Retail Installment Sales Act (RISA), specifies terms for retail installment contracts to ensure clarity and consumer protection.¹ Each contract must be a single written document containing all agreements; unwritten promises may not be enforceable.² It must be fully completed before the buyer signs, preventing sellers from adding terms later.

The contract must identify the buyer, seller, and any sales finance company involved, with their business addresses. A clear description of the goods or services, the transaction date, and details of any trade-in are also required.

A prominent notice must appear directly above the buyer’s signature line.³ This notice advises against signing an incomplete or unread agreement and affirms the right to a filled-in copy. Buyers are entitled to an exact, legible copy of the executed contract when they sign.

Financing Disclosures

New Jersey’s retail installment sales law requires transparent financial details. Contracts must clearly itemize financing costs so consumers are not misled about the true cost of borrowing.

Required disclosures include:

The cash price of the goods or services.
The amount of any down payment (cash, trade-in value, or both).
The resulting unpaid cash balance.
Any other financed charges, like insurance premiums or official fees, which must be individually listed.

The sum of the unpaid cash balance and these additional charges forms the principal balance, which is the total amount financed.

The contract must also disclose the finance charge (the total dollar cost of credit, including interest and other charges). The Annual Percentage Rate (APR) must also be conspicuously stated. The APR reflects the yearly cost of credit and helps compare financing offers.

Payment Schedules and Interest

The contract must specify the repayment plan, including the total amount to be repaid (principal plus finance charge). It must also detail the installment schedule: payments should be roughly equal, consecutive, and regular. The due date of the first payment, and the number, amount, and frequency of all installments must be clearly stated.

Interest, also known as a finance charge, has legal limits in New Jersey. Maximum rates include:

$7.00 per $100 per year for new motor vehicles.
$10.00 per $100 per year for used motor vehicles up to two years old.
$13.00 per $100 per year for used motor vehicles older than two years.
For other goods, $10.00 per $100 per year on principal up to $1,000, and $8.00 per $100 per year on principal exceeding $1,000.⁴

Buyers can pay their outstanding balance in full at any time before maturity. Upon prepayment, they receive a refund credit for the unearned portion of the finance charge. If a payment is delinquent for at least 10 days, a late charge may be imposed, not exceeding 5% of the installment or $5.00 (whichever is less).⁵ The law also allows for reasonable attorney’s fees if the account is referred for collection.

Protections for Purchasers

The Retail Installment Sales Act provides several protections for buyers. Contracts cannot contain blank spaces when presented for signature, and buyers have a right to a complete copy at signing.

The Act prohibits several unfair contract clauses. Contracts cannot include provisions that:

Grant sellers power of attorney to confess judgment.⁶
Assign the buyer’s wages.
Authorize unlawful entry onto a buyer’s premises for repossession.
Permit any breach of peace during repossession.

If a contract is sold to a finance company, the buyer retains the right to assert claims and defenses against the new holder that they had against the original seller (a protection known as the Holder Rule). The law also limits a seller’s ability to take a security interest in real property for goods like appliances. If insurance is financed but the policy or certificate isn’t provided promptly, the buyer can cancel the contract and receive a full refund.

Any attempt by a seller to have a buyer waive these protections is void.

Duties of Retailers

Retailers and sales finance companies (unless exempt, like banks) must be licensed by the New Jersey Department of Banking and Insurance.⁷ They are also required to maintain accurate records of their installment sales.

Upon a buyer’s written request, the contract holder must provide a statement of payments and the total unpaid amount. Once all payments are made, the holder must supply documents confirming full payment and releasing any security interest.

Consequences of Default

Failure to meet contract obligations, such as missing payments, constitutes a default. This can lead to the creditor activating an acceleration clause, making the entire unpaid balance immediately due.

Following default, creditors may repossess the goods. Repossession without a court order must occur without a “breach of the peace” (no force, threats, or unauthorized entry). For motor vehicles, sellers intending to repossess for non-payment must give at least 10 days’ written notice. This notice informs the buyer of the right to cure the default within that period.

After repossession, buyers have a right to redeem the collateral by paying the full accelerated debt plus reasonable creditor expenses before the goods are sold. Creditors must notify buyers before selling repossessed items, providing details about the sale and potential liability for a deficiency. The sale must be conducted in a commercially reasonable manner.⁸

Sale proceeds cover repossession costs, sale expenses, and the outstanding debt. If proceeds are insufficient, the buyer may owe a deficiency balance. If there’s a surplus, the buyer is entitled to it. Creditors must explain how any surplus or deficiency was calculated. Failure to follow proper procedures can affect a creditor’s ability to collect a deficiency. Default and repossession also negatively impact credit scores.