What type of credit involves a series of fixed payments over a specified period?

Installment credit is a type of credit that requires borrowers to make a series of fixed payments over a specified period. This structure provides borrowers with the ability to budget their finances more easily, as they know exactly how much they need to pay each month until the loan is fully repaid. Common examples of installment credit include car loans, personal loans, and mortgages, where the loan amount is divided into equal payment amounts over a predetermined term, typically featuring a consistent interest rate.

In contrast, revolving credit allows borrowers to access a flexible line of credit, where the amount borrowed can fluctuate and payments can vary based on the outstanding balance. Payday loans are short-term loans typically requiring repayment on the borrower’s next payday, often with high interest rates, while collateral refers to an asset that secures a loan, which can be forfeited if the borrower fails to repay the debt, but does not specify a payment structure. Understanding these distinctions aids in managing finances and making informed borrowing choices.