Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Purchase Protection

What it is:

Purchase protection is an agreement between a customer and a seller whereby the two sides agree to set the price of a good or service in place for a particular time period.

How it works (Example):

In reality, purchase protection (also called price protection) is an aspect of many credit cards, whereby customers are able to receive refunds on items purchased with the credit card if the price of those items decreases within a specific time frame after the purchase.

For example, let's say you purchase an airline ticket to Orlando for $750 on January 1 with a credit card. However, on January 23 the price falls to $500. A purchase protection guarantee in the credit card contract would entitle you to a $250 refund from your credit card company.

Why it Matters:

Purchase protection is a way to persuade customers to purchase items even though they might be concerned about overpaying if prices fluctuate. As such, purchase protection is more relevant and effective for goods and services whose prices change regularly. Though they are a common component of credit card agreements, in general, they are uncommon.

Related Terms View All
  • Auction Market
    Though most of the trading is done via computer, auction markets can also be operated via...
  • Best Execution
    Let's assume you place an order to buy 100 shares of Company XYZ stock. The current quote...
  • Book-Entry Savings Bond
    Savings bonds are bonds issued by the U.S. government at face values ranging from $50 to...
  • Break-Even Point
    The basic idea behind break-even point is to calculate the point at which revenues begin...
  • Calendar Year
    If Company XYZ starts its fiscal year on January 1 and ends its fiscal year on December...