Installment loans offer diverse options and amounts tailored to specific purchases. Two common types are mortgages and auto loans, which necessitate collateral to secure the loan. Conversely, payday loans, credit cards, and lines of credit fall outside the category of installment loans.
Mortgages are sizable loans typically used to purchase homes, with the home itself serving as collateral. They are paid back over a long period, often decades, in regular installments. Auto loans also require collateral, usually the vehicle being purchased. Like mortgages, auto loans are repaid over time with scheduled payments.
On the other hand, payday loans are short-term loans due by the borrower’s next payday, often with very high interest rates. They do not require collateral and are usually for smaller amounts. Credit cards provide a revolving line of credit, where the borrower can spend up to a set limit and make minimum payments monthly. Lines of credit function similarly to credit cards but typically have higher credit limits and are linked to specific assets or accounts.
(Response: Payday loans, credit cards, and lines of credit are not examples of installment loans.)