Legal Definitions - add-on clause

An add-on clause is a provision in an installment contract that allows earlier purchases to be used as security for new purchases. This means that if a customer has already made purchases on an installment plan, they can use those purchases as collateral for future purchases.

Let's say that a customer buys a computer on an installment plan. After a few months, they decide that they want to buy a printer to go with the computer. With an add-on clause, the customer can use the computer as collateral for the printer purchase. This means that if the customer defaults on the printer payments, the computer can be repossessed to cover the debt.

Another example could be a furniture store that offers an add-on clause. A customer buys a couch on an installment plan and later decides to buy a coffee table. The store can use the couch as collateral for the coffee table purchase.

These examples illustrate how an add-on clause can be beneficial for both the customer and the seller. The customer can make additional purchases without having to go through the entire credit approval process again, and the seller has added security for the new purchases.