If you need to set up a payment plan with someone, you can use our free payment plan agreement template to outline all the terms and conditions of a loan. With all the information you need, our payment plan agreement PDF or Word templates can help you with your financial dealings. If you need help building your payment agreement, our document builder makes it quick and easy to complete.
What Is a Payment Agreement?
A payment plan agreement is a legal document between a lender and a borrower. It outlines the terms agreed between the parties to set up a mutually agreed repayment schedule. They are commonly used when the borrower or debtor, can’t, or doesn’t want to, pay a full amount for goods or services in a single installment. They’re typically paid by ACH Debit on a recurring basis.
Alternate names for this document include:
- Payment contract
- Installment agreement
- Payment agreement letter
What is a Payment Agreement Used For?
Payment plan agreements are used in lots of different settings to act as a legally binding contract between two parties. Some common examples of where payment agreements are used include:
- Buying a car
- Overdue rent
- Tuition fees
- Legal services
How to Write a Payment Plan Agreement?
There are several elements you need to consider when writing a payment plan agreement. Although payment plan agreements can be structured in different ways, you will need to make sure the correct outcome of paying for the goods or services is achieved.
Alternatively, you can use our payment plan document builder where you’ll just have to insert the answers to the below:
Step 1 – The debt amount
The headline of a payment plan agreement is to pay off the total amount to the lender. In the agreement, you need to outline what the loan is for and how much the total debt is.
Step 2 – The deferral
Another important element to include when writing a payment plan agreement is when the total debt needs to be paid by. Make sure you include the date the agreement is starting and when it will end.
Step 3 – Payment and payment method
When writing a payment agreement, you need to consider the payment method and the payment frequency. Will the borrower pay the full amount as a lump sum, or will they pay in installments? If you agree to go with regular payments, you will need to decide how often the payments will be made and when. You will also need to agree on what payment method will be used — typically installments will be paid by ACH Debit.
Step 4 – Further terms
If you’re creating your own payment plan agreement, you should also consider additional terms such as future amendments, legal fees, indemnification and an acceleration clause if the borrower cannot render payment.
Step 5 – Signatures
Your payment plan agreement won’t be legally binding without written consent from both the borrower and the lender. Signing the contract acts as legal proof that the involved parties have accepted the terms of the agreement.
Sample Payment Plan Agreement Template
Here’s what a typical payment plan agreement looks like:
Why Make a Payment Plan Agreement?
There are a number of benefits of making a payment plan agreement:
- If drafted well, a payment plan agreement can be used as a piece of evidence in court. This can be helpful if the borrower can’t pay or doesn’t follow the terms of the agreement and the lender needs to take the situation to court to get their money back.
- A payment plan agreement provides explicit instructions on how payment should be made and when. This helps avoid any confusion when lending and repaying debts.
- It provides a level of protection for both the lender and the borrower. The payment plan agreement acts as legal proof to show the total amount owed. As an additional level of protection, you could sign the agreement in front of a notary or get witnesses to sign the document too. Both the lender and the borrower will receive a copy of the agreement.