How Installment Loans Work
Quick answer
An installment loan is borrowing repaid in fixed, scheduled payments over a set term. Each payment covers part of the principal plus interest. Common types include personal loans, auto loans, and student loans. Terms, rates, and eligibility vary by lender and by your credit profile.
Installment loans are one of the most common ways people borrow. This guide explains how they work without the jargon, so you can compare options on equal footing.
How repayment works
You borrow a fixed amount and agree to repay it over a set term in equal, scheduled payments. Each payment is split between principal and interest.
What to compare
When weighing any installment loan, look at the total cost over the full term, the payment amount relative to your budget, and any fees beyond interest.
Frequently asked questions
What is an installment loan?+
An installment loan is money borrowed and repaid through fixed payments on a regular schedule until the balance reaches zero. The number of payments and the amount are set at the start.
How is an installment loan different from a credit card?+
An installment loan gives a one-time lump sum repaid on a fixed schedule. A credit card is revolving credit you can draw from repeatedly, with payments that vary based on your balance.