installments

Installments are payments made in a series toward the purchase of goods or services, rather than a single upfront payment. Installment arrangements are common in consumer finance, retail purchases, and service contracts.

In an installment agreement, the buyer and seller agree on the total price, any down payment, a payment schedule, and whether interest applies. Each installment reduces the outstanding balance; payments may include principal and interest or, in interest-free plans, only principal. The contract may specify due dates, late fees, creditor rights, and consequences of default.

Types of installment arrangements include installment loans, layaway, and buy now, pay later (BNPL) plans. An installment loan is repaid in fixed payments over a term. A layaway plan holds the item until it is paid in full, with payments typically not accruing interest. BNPL and similar retailer plans allow post-purchase payments, sometimes with no interest during promotional periods. Some plans feature balloon or graduated payments, where the final payment is larger or the payment amounts change over time.

Calculation of fixed installment payments typically uses the loan amount, the periodic interest rate, and the number of payments. A common formula is Pmt = L * r / (1 - (1+r)^-n). The total cost equals Pmt times n, and the annual percentage rate (APR) expresses the true cost on a yearly basis. Fees and penalties may affect the overall cost.

Benefits include improved affordability and broader access to goods; drawbacks include higher total cost due to interest, risk of debt, and potential penalties for late payments. Regulation varies by jurisdiction, but many systems require clear disclosure of terms and total cost.