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What is installment credit?

Installment credit (or an installment account/installment loan) is a type of credit where the consumer borrows a set amount of money and agrees to pay it back over a fixed period of time. The payment on an installment loan is the same every month.

A car loan is a prime example of installment credit. If John borrows $30,000 to buy a new car, the lender might set his payments at $665 per month for 48 months. That means that over the next 48 months, John’s payments will equal $31,920. The $30,000 amount is the principal and $1,920 is the interest.

Auto loans, mortgages, student loans, rental contracts for an apartment/house, personal loans, and even expensive purchases like furniture (if purchased using installment credit) are all types of installment accounts.

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