The basic structure
An installment loan provides a fixed lump sum upfront, which is repaid through a series of scheduled payments — usually monthly — over an agreed term. Each payment covers a mix of interest and principal, and the mix shifts over the life of the loan under standard amortization: early payments are weighted more toward interest, later ones more toward principal.
Because the amount, rate and term are fixed at origination, the payment itself is usually predictable for the life of the loan, which is the main practical difference from revolving credit such as a credit card, where the required minimum payment and balance both float with usage.
What drives the size of the payment
Three variables set the payment: the amount borrowed, the annual percentage rate, and the term length. Raising the amount or the rate raises the payment; lengthening the term lowers the payment but increases the total interest paid over the life of the loan, because interest accrues for more months.
Origination fees, if charged, are typically deducted from the disbursed amount or added to the balance, and both approaches change the actual amount available to the borrower or the effective cost of borrowing it. Ask specifically how a fee is applied before comparing offers.
Secured and unsecured versions
Installment loans can be secured — backed by an asset such as a vehicle — or unsecured, relying only on the borrower's promise to repay and creditworthiness. Secured loans often carry lower rates because the lender has recourse to collateral, but they add the risk of losing the asset on default.
Personal loans are the most common unsecured installment product; auto loans and some debt-consolidation loans are commonly secured. The presence or absence of collateral is usually disclosed clearly in the loan agreement and should be one of the first things checked.
What to check before signing
Confirm the APR, not just the interest rate, since APR folds in most mandatory fees and is the more complete cost figure. Confirm the total amount repayable over the full term, and whether the loan can be repaid early without penalty.
Check how payments are reported to credit bureaus, and confirm what happens in the event of a missed or late payment, including any grace period and the size of any late fee.