Installment Loan

Installment loan summary:

  • You receive an installment loan as a single lump sum. 

  • You then repay that installment loan over a series of scheduled payments. 

  • The interest rate and loan term help determine how much you’ll pay for an installment loan. 

Installment loan definition and meaning

An installment loan is a type of loan received in a single lump sum and repaid over time through a set number of scheduled payments. Each payment is an installment. Installment loans are commonly used for big-ticket items like homes, cars, boats, or other large purchases. 

Key concept:

An installment loan is distributed as a lump sum and repaid through equal monthly payments. 

More about installment loans

Installment loans make it possible for everyday consumers to purchase large items they may not otherwise have the money to buy. For example, most of us get an installment loan to buy a home. Rather than come up with hundreds of thousands of dollars in cash, buyers can borrow the money from a mortgage lender and repay it by making monthly payments. 

Installment loans: a comprehensive breakdown 

When you’re considering an installment loan, it’s important to understand how much it will cost. These two factors play a role:

  • Interest rate. The interest rate may be fixed or variable, depending on the loan. As the names suggest, a fixed-rate loan has an interest rate that remains fixed in place. It stays the same throughout the life of the loan. A variable-rate loan has an interest rate that can vary. The rate could go up or down while you have the loan.   

  • Loan term. A term is the length of time you have to repay the loan. For example, a 5-year personal loan is repaid over 5 years. A 20-year home equity loan is repaid over 20 years. 

Before signing your name to a loan agreement, it’s smart to look closely at the interest rate and term. You can use online calculators to find out how much interest you’ll pay if you’re looking at a fixed-rate loan. It’s not possible to predict the total interest you’ll pay on a variable-rate loan.  

PERSONAL LOANS

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