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Installment loan

A loan you receive as one lump sum and repay in a set number of scheduled payments, such as a car loan, mortgage or personal loan.

What It Means

An installment loan is money you borrow all at once and pay back in scheduled payments, usually monthly, until the loan is paid off. Car loansCar loanAn installment loan used to buy a vehicle, repaid in monthly payments over a set term, with the vehicle as collateral. See more, mortgagesMortgageA loan used to buy or refinance a home, secured by the home itself and repaid in monthly installments over a set term. See more and personal loansPersonal loanAn installment loan, usually unsecured, that a bank, credit union or online lender pays out as a lump sum you can use for almost any personal purpose. See more work this way, and the term can run from a few months to many years. Once it's paid down you can't borrow the money again without taking out a new loan, which is the main difference from revolving creditRevolving creditCredit you can borrow, repay and borrow again up to a set limit, such as a credit card or a line of credit. See more such as a credit card, where you can borrow, repay and borrow again up to a limit.

Try It: Installment or Revolving? Flip Six Cards

Guess whether each is installment or revolving, then open the card to check. Answers follow Experian's definitions.

Car loan

Installment. One lump sum for the car, repaid in monthly payments over a set term.

Credit card

Revolving. Pay it down and the credit is there to use again, up to your limit.

Mortgage

Installment. Borrowed once and paid off over a term such as 15 or 30 years.

Personal loan

Installment. You get the whole amount up front and repay it in fixed payments.

Personal line of credit

Revolving. You draw what you need, repay it, and can draw again.

Home equity line of credit (HELOC)

Revolving. It's a line of credit, secured by your home.

How People Say It

  • "It's a 60-month installment loan."
  • "Once the car's paid off, that payment is gone for good."
  • "I'd rather have a fixed payment than a card balance."

The Breakdown

Worked example. A $3,000 installment loan at an example fixed rateFixed interest rateAn interest rate that's set when you borrow and stays the same for the life of the loan, so the monthly payment doesn't change. See more of 10%, at three common lengths:

TermMonthly paymentTotal interestInterest rateThe yearly percentage a lender charges for borrowing money, not counting fees; the APR adds certain fees to show a fuller cost. See more
12 months$263.75$164.97
24 months$138.43$322.43
36 months$96.80$484.86

What the result means. The payment is known before you sign and stays the same every month on a fixed-rate loan, which makes it easy to budget. As the CFPB explains for amortizing loans, each payment covers the interest on what's still owed and puts the rest toward the balance, so the loan reaches zero on the last payment. A longer term shrinks the payment and grows the total interest, the same trade described on the loan termLoan termHow long you have to repay a loan, usually stated in months for a car loan and in years for a mortgage. See more page.

Compared with revolving credit. A $3,000 card balance has no end date built in, and new purchases add to it. An installment loan has a set last payment from the day you sign.

Good to Know

Check three things before signing any installment loan: the APR (which includes certain fees), the total you'll repay over the full term, and whether there's a penalty for paying early. Compare offers by those figures along with the monthly payment, since a lower payment often comes from a longer term. If the loan is secured, as a car loan is by the car, missing payments can cost you the thing it paid for.

FAQ

What is an example of an installment loan?

Car loans, mortgages and personal loans are the common ones. Each is borrowed as one amount and repaid in scheduled payments over a set term.

What's the difference between installment and revolving credit?

An installment loan is a lump sum repaid on a schedule, and it can't be reused once it's paid down. Revolving credit, such as a credit card or line of credit, lets you borrow up to a limit, repay and borrow again.

Are installment loan payments always the same?

On a fixed-rate loan, yes, until the last payment. A variable-rate loanVariable interest rateAn interest rate that can rise or fall over the life of a loan or card because it's tied to an index, such as the prime rate, plus a set margin. See more's payment can change when its rate does.

Do It in Buhata

Budget, Countdown

Enter the payment as a repeating monthly expense in Budget, and add the date of the last installment to Countdown.

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Related Terms and Categories

  • Revolving credit

    Credit you can borrow, repay and borrow again up to a set limit, such as a credit card or a line of credit.

  • Amortization

    Paying off a loan through regular scheduled payments, each split between interest and principal, until the balance reaches zero at the end of the term.

  • Personal loan

    An installment loan, usually unsecured, that a bank, credit union or online lender pays out as a lump sum you can use for almost any personal purpose.

  • Car loan

    An installment loan used to buy a vehicle, repaid in monthly payments over a set term, with the vehicle as collateral.

  • Loan term

    How long you have to repay a loan, usually stated in months for a car loan and in years for a mortgage.

  • Credit mix

    The variety of credit types on your report, such as cards, retail accounts, installment loans and a mortgage; it makes up 10% of a FICO Score.

Debt and credit

Sources

Experian, "What Is an Installment Loan?"; Experian, "Installment vs. Revolving Credit: What's the Difference?"; Experian, "Personal Loan vs. Personal Line of Credit: What's the Difference?"; Experian, "What Is a Line of Credit? PLOCs, HELOCs and More"; Consumer Financial Protection Bureau, "What is amortization and how could it affect my auto loan?"

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