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Payment Plan
Definition
A payment plan is an agreement between a borrower and lender to repay a debt through scheduled payments over a specified period.
Explanation
Payment plans can be formal (loan amortization schedule) or informal arrangements with creditors. They help make large debts manageable by spreading payments over time. Many creditors offer hardship payment plans for borrowers experiencing financial difficulties.
Always get payment plans in writing. Understand the total interest cost and whether there are penalties for early repayment.
Example
A $5,000 medical bill paid over 12 months at 0% interest requires $417/month. The same amount on a credit card at 18% would cost $458/month.