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A payment plan agreement is established between a customer and a creditor, binding the debtor to repay the owed amount according to specified terms. These plans are commonly adopted for expensive items or services, allowing businesses to alleviate the financial burden on buyers by breaking costs into manageable payments. This arrangement benefits sellers by potentially increasing sales revenue through interest charges. While payment plans can be applied to various goods and services, they are particularly useful when immediate purchase is necessary. The video also discusses popular items and services for payment plans and where to find a free agreement template.