Legal Definitions - time-price doctrine

The time-price doctrine is a rule that applies to debts that arise from a purchase and sale. It states that if a higher price is charged for a deferred payment than for an immediate payment, the usury laws do not apply. This means that the seller can charge more for a product if the buyer chooses to pay for it over time instead of all at once.

For example, let's say you want to buy a new TV that costs $1,000. The seller offers you two options: pay $1,000 upfront or pay $1,200 over the course of a year. If you choose to pay over time, the extra $200 is considered compensation to the seller for the risk that you might default on your payments and for the interest they could have earned if you had paid upfront.

The time-price doctrine is important because it recognizes that buyers who choose to pay over time are not in the same position as borrowers who are forced to take out loans from potentially predatory lenders. Buyers have the option to save up and pay the cash price, while borrowers may not have that luxury.