what is an installment debt 
an installment debt is a loan that is repaid by the borrower in regular installments an installment debt is generally repaid in equal monthly payments that include interest and a portion of the principal this type of loan is an amortized loan that requires a standard amortization schedule to be created by the lender detailing payments throughout the loan s duration understanding installment debtan installment debt is a favored method of consumer financing for big ticket items such as homes cars and appliances lenders also favor installment debt since it offers a steady cash flow to the issuer throughout the loan with regular payments based on a standard amortization schedule the amortization schedule will determine the size of the monthly installment debt payments the amortization schedule is created based on several variables including the total principal issued the interest rate charged any down payment and the total number of payments for example few can afford to pay off the price of a home in a single payment therefore a loan is issued with a principal amount covering the home s value and is amortized with monthly installment payments over a period mortgage loans are typically structured with a 15 year payment schedule or a 30 year payment schedule as a result mortgage borrowers can make steady installment debt payments over the life of the loan which helps to make purchasing a home more affordable conversely an appliance that costs 1 500 can be paid off in a year by most people the buyer can further reduce the monthly payments by making a substantial down payment of 500 for instance in this case assuming an interest rate of 8 the equal monthly payments over one year would be approximately 87 which means the total financing cost over the one year period is about 44 on the other hand if the buyer does not have the resources for a down payment and finances the total 1 500 cost of the appliance for one year at 8 the monthly payments would be 130 50 the total financing cost in this case is a little higher at 66 installments loans are often lower risk loans than loans without installment payments special considerationsan installment loan is one of the most traditional loan products offered by lenders lenders can build a standard amortization schedule and receive monthly cash flow from both principal and interest payments on the loans in addition high quality loans can be accepted as qualified loans receiving certain protections and offering the opportunity for sale on the secondary market which increases a bank s capital installments loans can generally be much lower risk than other alternative loans that do not have installment payments these loans can include balloon payment loans or interest only loans these alternative loans are not structured with a traditional amortization schedule and are issued with a much higher risk than standard installment loans types of installment debttraditional loans from financial institutions for homes and automobiles are a prominent source of lending business for lenders most of these loans are based on conservative underwriting with standard amortization schedules that pay down principal and interest with each installment payment alternative installment debt loans are also offered by a variety of higher risk alternative lenders in the credit market payday loans are one example they charge higher interest rates and base the principal offered on a borrower s employer and per paycheck income these loans are also paid with installments based on an amortization schedule however their underlying components involve much higher risks in 2014 the dodd frank act instituted legislation for qualified mortgages this provided lending institutions with more significant incentives to structure and issue higher quality mortgage loans standard installment repayment terms are one requirement for qualified mortgages in addition as a qualified mortgage loan it is eligible for certain protections and is also more appealing to underwriters in secondary market loan product structuring installment debt vs personal loansan installment loan is a financial vehicle in which a lender agrees to be paid back in installments versus one payment for example a mortgage payment is a type of installment loan repaid by the borrower in monthly installments that include principal and interest federal loans for education and mortgages are two types of common installment loans an installment debt is money owed on an installment loan an installment loan is a type of personal loan but there are other kinds of personal loans including payments repaid in full with interest rather than in installments a personal loan can come from a bank a credit union a boss or a member of your family advantages and disadvantages of installment debtlike any loan there are advantages and disadvantages to taking on installment debt for example if you want to buy a house an installment loan is a great way to borrow a large sum of money and pay it back over time on the other hand if you hate the idea of being in long term debt borrowing and then paying a personal loan off in full may be more appealing an installment debt is paid off on a regular schedule set by the lender an installment loan allows you to budget your money each month while you are paying off your debt in some cases when you have signed up to pay your loan off using installment payments you will be charged with a penalty fee if you decide to pay it off early in addition installment loans take time to pay off making them a financial commitment installment loans allow the borrower to pay off their loan over time installment loans provide a way to borrow large sums of money to purchase big ticket items like a home installment debt is usually a set amount each month making it easier on your budget installment debt is usually very high making it difficult to pay off in one payment installment debt includes interest which adds up over the years some lenders may charge a penalty fee if you pay off your loan in full the bottom linean installment debt is a type of loan repaid by the borrower in regular often monthly payments that include the interest owed plus a portion of the principal an installment debt is an amortized loan and has a standard amortization schedule created by the lender that shows the borrower how much they will owe over the life of the loan mortgages and student loans are often forms of installment debt and allow borrowers to gain access to large sums of money an installment debt is less risky than borrow large amounts that must be paid off in full with interest in a short amount of time installment debt faqsan irs installment agreement is a plan used to pay the irs via installments any tax you owe them the irs issues a charge of one half of a 1 rate on unpaid taxes up to 10 days afterward the interest rises to 1 but if you file your return by its due date and request an installment agreement the one half of 1 rate decreases to one quarter of 1 for any month in which an installment agreement is in effect according to its website 1an installment sale is a sale of property where you receive at least one payment beyond the tax year of the sale however installment sale rules don t apply if you sell your property at a loss 2like any loan if you don t pay back what you owe you can find yourself in a lot of financial trouble if you default on your mortgage for example you can lose your home in addition if you don t pay your installment loan the fees interest and potential penalty charges will increase by not paying your loans you risk damaging your credit as well it is possible to get an installment loan with bad credit but you find yourself saddled with a higher interest rate on the loan if your credit is below 600 if you shop around for a loan you may find one even if your credit is considered bad by one of the big three credit bureaus 3 however you may not qualify for a mortgage which is a type of installment loan with a score lower than 550 4