Installment Loan
An installment loan is a closed-end loan where you receive a lump sum upfront and repay it in equal scheduled payments over a set term, usually 3 to 24 months for subprime borrowers. Each payment combines principal and interest. Once the final payment is made, the loan is closed — unlike a credit card, the balance doesn't replenish as it's paid down.
Installment loans are the most common form of consumer credit after credit cards. Mortgages, auto loans, student loans, and personal loans are all installment loans. The defining feature is the scheduled, predictable repayment over a fixed term.
How they differ from other credit
Compared to credit cards (revolving credit), installment loans have a fixed payoff date and don’t allow you to re-borrow against the principal as you pay it down. This is a feature, not a limitation: it forces discipline and means you’ll definitely be debt-free at a known date.
Compared to payday loans, installment loans spread repayment across multiple months instead of demanding lump-sum repayment on your next payday. This makes them much harder to fall into rollover cycles with.
Compared to lines of credit, installment loans have a fixed amount disbursed upfront rather than an available limit you can draw from over time. Lines of credit offer more flexibility but typically have higher rates and require more active management.
When they’re the right choice
Installment loans work well for one-time expenses with a known cost: medical bills, home repairs, debt consolidation, major purchases. The fixed structure makes budgeting straightforward: same payment, same date, every month, until the loan is paid off.
For more on how installment loans actually work in practice, see our guide on online installment loans.