Question

How does an installment note differ from a bond payable?

Answer 1

Installment notes are issued similarly to regular notes payable. An installment note is a long-term liability that is to be paid in set payments at specific points in time. However, the amortization schedule becomes important in showing the breakdown and changes in what the regular, fixed payment covers. Although the payments are in equal amounts, each payment of an installment note pays for a reduction in principal and a portion of interest. These payments can be scheduled to show the breakdown, known as an amortization schedule. Installment notes differ from bonds in that an installment loan is only equal payments while a bond has a face value to be settled at the end. Mortgages and car loans are common examples of installment notes, as both involve equal payments across the life of the loan.

Unlike bond, Each note payable consists of a portion of the amount initially borrowed & payment of interest on the outstanding balance.