When a customer buys a product with a credit card, does the seller receive the money in installments or completely in one transaction?

Question

Assuming a customer buys a $2,000 computer with a credit card and will pay in 12 months, will the seller receive those payments in 12 installments? or will he receive them all in one payment?

Answer 1

This depends on who extends the credit. If it is the seller who extends the credit (i.e.: the seller is the one allowing the installments) then they'll receive the money in installments. If it's the credit card company that extends the credit - the customer will pay the credit card company in installments, but the credit card company will pay the merchant the full amount at once.

Both options exist in the market, and depending on your location one may be more common than the other.

There's also a third option where there's a third party extending credit, but that would look the same to both the consumer and the merchant as the second option, it's just a question of who gets the risk and the interest payments.

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Some examples:

See the example of the Amazon installment plans:

You authorize us to charge each payment to your selected payment method. If the selected method is unavailable (for example, a card has expired and cannot be charged successfully or funds are not available in that account), we will use another payment method we have on record for you. You agree to maintain in your Amazon.com account at least one valid credit card that expires no earlier than 20 days after your last payment due date.

In this case, it is clearly the merchant who's providing the credit, and not the credit card. This is an example of option 1.

Alternatively see the Chase "My Chase Plan" option - here the credit card (Chase) gives the installment options and the merchant is paid in full immediately.

Equal monthly payments for any purchase of $100 or more

This is an example of option 2.

Many times merchants (especially large ones) combine these into a branded credit card. In reality it would still be option 2, since you'll open a credit account with a credit company that is separate from the actual store you're buying from. You may end up with a branded credit card that you can use everywhere, or a store card to be used in that particular place. Example: BestBuy (Citi does the credit).

For option 3, you can have a case where you make a purchase and you end up with a credit line specific to that purchase from a third party provider. For example: Walmart (Affirm does the credit). You don't get a credit/store card, you get a an installment loan that's not revolving and for a specific purchase. The merchant gets paid in full. This loan may be charged to your credit card, or directly to your bank account.

Answer 2

When a customer buys a product with a credit card, does the seller receive the money in installments or completely in one transaction?

OK, so a) you bought with a credit card, and b) you're wondering when and how the merchant is paid, and you wonder if the merchant is paid in installments. Correct?

The entire point of a credit card is so the seller gets paid reasonably immediately, and the credit card company carries the paper.

For instance if you balk and refuse to pay the credit card, the issuer is not going to claw back the money from the merchant.

Normally.

If you refuse to pay because of a dispute, the credit card issuer is quite likely to claw back the money on your behalf, and step back from the dispute. You still owe the money to the merchant, and the merchant can use normal debt collection means to go after you for it, or any other arrangement mutually agreeable. (settle for a fraction, return the item and a small payment, etc.)

Answer 3

Assuming a customer buys a $2,000 computer with a credit card and will pay in 12 months

Credit cards are marketed to both consumers and merchants as conveniences. For the consumer, the single $2,000 purchase will be paid to the credit card company as 12 payments of $166.67 plus interest.

will the seller receive those payments in 12 installments? or will he receive them all in one payment?

For the merchant,the single purchase will be credited to their bank account the same day, minus the 2% - 5% credit card fee charged by the card company.

The incentive for the merchant to accept less than the total price is an increase in sales due to consumers being more willing to make purchases they otherwise couldn't afford. The incentive to the consumer to pay more than the total price is the ability to pay over time.

Note that there are general credit cards, like Visa and MasterCard, which are accepted at many merchants, and store-specific credit cards which are only accepted at one company, such as department store or oil company cards. To the consumer they operate in a similar manner.

Answer 4

The best way is to look at the available credit. Some transactions are split on the merchant side, so they can appear like recurring transactions, similar to how future monthly subscriptions like Netflix not using the line of credit. However, if it appears as a $2000 transaction in your statement / app and you applied to the financial institution to split the transaction (or the whole bill), then you are borrowing money from that financial institution.