Installment Loans Are on a Fixed Schedule

• By definition, installment loans are repaid in periodic payments---known as installments---remitted to the lender on a regular basis. Because variables such as the amount of the principle, the duration of the repayment plan and the interest rate are set up and agreed to by both parties when the loan is closed, the total of all payments can be easily calculated and divided up into convenient periodic payments. This arrangement is often considered desirable by borrowers because it provides some regularity in calculating expenses. In addition, borrowers are usually presented with the proposed payment amount before finalizing the loan agreement, creating an opportunity for borrowers to shop elsewhere if the payment amount is not desirable. While the frequency of the payments can be altered by the lender before the loan is closed, most periodic payments are remitted on a monthly basis.
  
  

Most Installment Loans Repay Interest First

• Depending on the lender's policies and practices, the interest paid to the bank for the privilege of borrowing money may be repaid several different ways. Some institutions, for example, designate a certain percentage of each payment to be applied toward the principle balance and another percentage to be applied toward the interest amount. It is far more common, however, for the bulk of the interest to be paid with the first several payments, leaving the principle amount to be paid after the interest payments are completed. The arrangement of interest and principle in each payment is presented to the borrower in a document known as an "amortization table," and savvy borrowers should ask to see this document before closing a loan.
  
  

Credit Cards Are Not Installment Loans

• Since installment loans are repaid on a fixed periodic basis, the amount can't be modified while the loan is being repaid. For this reason, installment loans differ considerably from credit cards. In financial terms, credit cards are known as "revolving credit," indicating that the principle amount owed on them is subject to change; by comparison, installment loans are issued for a fixed amount up front and require a set payment plan that rarely varies from month to month.