Which loan is repaid in fixed payments that include principal and interest?

Which loan is repaid in fixed payments that include principal and interest?

• A. Open-Ended Credit
• B. Installment Loan
• C. Service Credit
• D. Layaway Plans

Answer: (B)

Fixed payments that include both principal and interest characterize an installment loan. In this setup, you borrow a set amount and repay it over a defined term with equal payments each period. Each payment reduces the loan balance while also covering the interest, so the principal portion grows over time and the interest portion shrinks. This predictable, amortizing schedule is what makes an installment loan distinct. Open-ended credit isn’t fixed and revolving; you carry a balance and payments can vary. Service credit is simply paying for services after they’re used, not a structured loan with regular amortized payments. Layaway plans involve paying for an item before taking possession, not repaying a loan over time with interest.

Fixed payments that include both principal and interest characterize an installment loan. In this setup, you borrow a set amount and repay it over a defined term with equal payments each period. Each payment reduces the loan balance while also covering the interest, so the principal portion grows over time and the interest portion shrinks. This predictable, amortizing schedule is what makes an installment loan distinct.

Open-ended credit isn’t fixed and revolving; you carry a balance and payments can vary. Service credit is simply paying for services after they’re used, not a structured loan with regular amortized payments. Layaway plans involve paying for an item before taking possession, not repaying a loan over time with interest.