What Is Installment Billing?

by Carl Carabelli; Updated September 26, 2017

Often, a consumer is not able to pay the full amount of a purchase at once, especially with more expensive items. To assist borrowers, sellers offer installment billing. This is a process where the borrower makes payments over a set period after making the purchase.

Definition

Installment billing is the process of paying for a product or service in portions. These portions are due regularly over a set period. As a result of paying in installments, the purchaser is often charged interest.

How it Works

You purchase an item. At the time of purchase, the seller outlines the terms of the repayment. Each billing period (monthly being the most common), the seller sends you an invoice. The invoice contains your installment amount due, the due date and payment instructions. Make the agreed-upon payment at each pay period or you may face collection or repossession. You can speed up the process by making payments above the installment amount.

Typical Scenarios

Installment billing is more common for large items. Mortgages and other home loans are paid in installments, for example. Auto loans are also billed this way. Some household items like large appliances or furniture are paid this way. Services like car insurance, medical tests and homeowner’s insurance are also often paid in installments.

Advantages and Disadvantages

Installment billing is advantageous in that it allows you to purchase items you would not otherwise be able to afford. Paying the bill on time each month allows you to build your credit and improve your credit score. The disadvantage of installment billing is that you must remember to make the payment each month or your credit can suffer. You also may have to pay interest. When this happens, you end up paying more than the face value of the item. In the case of a home loan, this can be tens of thousands of dollars over time.

About the Author

Carl Carabelli has been writing in various capacities for more than 15 years. He has utilized his creative writing skills to enhance his other ventures such as financial analysis, copywriting and contributing various articles and opinion pieces. Carabelli earned a bachelor's degree in communications from Seton Hall and has worked in banking, notably commercial lending, since 2001.