What is a Partial Payment?

A partial payment refers to a payment that is made on an account for less than the total amount owed. This does not refer to periodic, scheduled payments. As long as those payments are made in the full amount requested by the creditor, they are not considered partial, even if they are not paying off the entire loan at once. Instead, a partial payment occurs when less than the requested amount is sent to the creditor. This may be sanctioned by the creditor as a way of settling the account and forfeiting the remainder, often through a court process. It may also simply be a choice of the borrower, albeit one that will usually have negative consequences.

An individual may make a partial payment on a monthly bill, for example, if he or she simply does not have the money to pay the full amount due. The remaining balance will be rolled into next month's bill, typically with additional late fees and even interest, depending on the amount of time that the account is unpaid. This can make it even harder to pay the bill off next month, but some people just don't have any choice and cannot make the payment in full. If this continues, such as for utility payments, the company might eventually refuse service.

Another common occurrence is when a partial payment made to settle an outstanding account. This may be best illustrated with an example. For instance, if an individual owes $15,000 US Dollars (USD) on a credit card, he or she might offer to make a one-time partial payment of $12,000 USD to settle the account. If the credit card company agrees to this, that means they are choosing to forfeit the $3,000 USD difference in the interest of receiving at least a portion of the amount owed. Some credit card companies will agree to this, while in other instances it will require going to court.

Typically, settling for a partial payment such as this is only done in extreme circumstances, such as if the account has been delinquent for a long period of time, or the individual is unemployed for an extended period. The assumption is typically that if the individual declares bankruptcy, the credit card company may then not get anything, so it is best to settle for a lesser amount and discharge the remaining debt, than to forfeit the entire balance. Each situation is different, however, and one should not make the assumption that this will be accepted by all creditors in every situation.