What are installment loans?

Installment loans are defined as loans that are repaid over a specified period of time with a series of scheduled payments. This structure allows borrowers to pay back the principal amount plus interest in regular installments, typically on a monthly basis. This type of loan is commonly used for significant purchases such as cars, home mortgages, and educational expenses.

The regular payment structure of installment loans makes them more manageable and predictable for borrowers, as they can budget accordingly for their monthly obligations. The amount of each installment payment is generally fixed, making it easier for individuals to plan their finances.

In contrast, loans that are paid back in a single payment (like balloon loans) do not follow the installment loan structure, and loans with variable interest rates may not have a fixed repayment schedule. Loans secured by collateral refer to secured loans but do not imply a specific repayment plan like installments do. Therefore, the distinguishing feature of installment loans is their repayment method, which involves consistent, scheduled payments over time.