Installment plan

The term installment plan refers to a structured plan for the installments that a borrower must make in order to repay and settle a loan or credit granted by a lender.

The repayment plan can basically range from a few simple installments to installments over 30 years. The installment plan should cover the entire term of the loan.

It is typically the lender/creditor who prepares an installment plan for the borrower/debtor, and it often precedes a loan or credit.

An installment plan can also be made in connection with an installment plan where, for example, a debtor cannot settle an amount owed, such as an invoice claim.

An installment plan is often also referred to as an amortization plan, amortization table, repayment plan or payment plan. Banks and mortgage companies will typically use the terms amortization table/amortization schedule.

Why set up an installment plan?

There are many good reasons to create an installment plan, both for the lender and the borrower. First and foremost, the repayment plan provides an overview - and not least a basis for the agreement on repayment/debt settlement.

Typically, the repayment plan is created by the lender in connection with the establishment of the loan, and many believe that it is therefore created solely for the sake of the borrower. However, this is not correct.

Example of an installment plan

There are many examples of how a repayment plan can be made, but often it is simple to create.

For example, the installment plan can be made in Excel, where each row represents an installment. If installments are made monthly for 12 months, there should be 12 rows. If you only pay quarterly, there should be 4 rows.

The repayment schedule should cover the entire loan/credit term - from the first installment to the last installment.

The rows should include the amount being repaid and how much the debt is reduced to after repayment.

If interest is accrued on an ongoing basis, this should be included in the installment plan.