What defines an installment loan?

An installment loan is characterized by set repayment terms and a specific borrowing purpose. This involves borrowing a predetermined amount of money and agreeing to repay it in equal installments over a specified period. The clear structure of installment loans includes scheduled payments that typically cover both principal and interest, making budgeting easier for borrowers.

For example, personal loans, auto loans, and mortgages are common types of installment loans, where the borrower knows the monthly payment amount and the duration of the loan. This predictability and defined repayment structure differentiate installment loans from other types of financing such as revolving credit, where repayment terms can vary.

Other options describe loan types that do not align with the standard characteristics of installment loans. Loans with variable repayment terms or those repaid in a lump sum lack the set structure found in installment loans. Additionally, a loan that does not require repayment does not fit standard lending practices, as any loan typically entails some obligation to repay under defined conditions. Therefore, the clarity and consistency with which installment loans operate make choice C the accurate definition.