What is typically a characteristic of installment loans?

The characteristic that each payment reduces the loan balance is central to the nature of installment loans. When borrowers take out an installment loan, they agree to repay the borrowed amount in a series of fixed payments over a specified time period. Each of these payments typically consists of both principal and interest components. As payments are made, the principal amount of the loan decreases, leading to reduced overall loan balance over time. This systematic reduction enables borrowers to understand how their debt decreases with each payment and provides a structured repayment plan.

The other characteristics presented in the options do not accurately reflect the nature of installment loans. Interest rates, while they can vary, are often fixed or at least established at the beginning of the loan term for many installment loans. Payments are structured to be regular—often monthly—rather than irregular. Additionally, installment loans do require repayment, making the option that suggests no repayment is needed misleading. Thus, the characteristic of the loan payments reducing the balance is a defining feature of installment loans, reflecting their structured repayment framework.