Which of the following best describes an installment loan?

• A. A loan repaid in a single lump sum at the end.
• B. A line of credit with a flexible repayment schedule.
• C. Loans repaid in regular payments over a period of time.
• D. A loan that cannot be used for large purchases.

Answer: (C)

An installment loan is defined by being repaid with a series of regular, fixed payments over a set period. Each payment includes both interest and a portion of the principal, so the balance steadily declines until it is fully paid off at the end of the term. This structure is what makes it different from other loan types: a single lump-sum repayment at the end would be a balloon loan, and a line of credit with flexible repayments is a revolving form of credit. Installment loans are commonly used for large purchases, and the consistent payment schedule helps borrowers plan payments and understand the total cost over time. As you make payments, the share going to interest drops and the share going to principal rises, even though the total payment amount stays the same.