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Installment loan
Also called amortizing loan, term note.
A loan repaid in scheduled payments of principal and interest over a fixed term, where each payment reduces the balance and interest accrues only on what is still outstanding.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
The structure most people picture when they hear "loan". A principal amount is advanced, a rate and a term are set, and a payment schedule amortises the balance to zero by maturity. Early payments are mostly interest; later ones are mostly principal.
The economically important feature is that interest is a function of time and outstanding balance. Repay early and you stop paying interest on the money you no longer have, subject to any prepayment provision.
Against the alternatives
- Merchant cash advance: a fixed total is owed regardless of when it is delivered. Paying early does not reduce it unless the agreement contains a discount provision, which is a negotiated concession rather than a feature of the structure
- Line of credit: interest accrues only on drawn balances and repaid principal can be redrawn
- Daily-debit "term loans": still amortising, still interest on balance — but with 21 or 22 collections a month rather than one, which changes cash-flow strain considerably even where the annual rate is identical
What to check in the note
Day-count convention (365/365 versus 365/360, which produces slightly more interest), whether the rate is fixed or floating and off which index, whether there is a balloon, prepayment terms, and whether payments are applied to fees first.
Where this one catches people
"Daily payments" and "amortising loan" are not in conflict, and merchants often assume a daily debit means it must be an advance. Several licensed lenders write genuine interest-bearing installment loans collected daily by ACH. The distinction matters: on a real installment loan, early payoff saves interest and there is a stated rate to compare. Ask whether the balance is a principal balance that amortises, or a fixed payback amount.
Worked through
Illustrative. $60,000 borrowed at a 14% annual rate over 36 monthly payments amortises to about $2,050 a month, with roughly $13,800 of total interest if held to maturity.
Repaid in full at month 12, the remaining principal would be around $42,000 and total interest paid to that point roughly $6,600 — well under half the full-term interest, because interest stopped accruing on the money that was returned.
Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.
Where you will meet this term
Read next
Installment loan — common questions
What does installment loan mean?
A loan repaid in scheduled payments of principal and interest over a fixed term, where each payment reduces the balance and interest accrues only on what is still outstanding.
Where does installment loan catch people out?
"Daily payments" and "amortising loan" are not in conflict, and merchants often assume a daily debit means it must be an advance. Several licensed lenders write genuine interest-bearing installment loans collected daily by ACH. The distinction matters: on a real installment loan, early payoff saves interest and there is a stated rate to compare. Ask whether the balance is a principal balance that amortises, or a fixed payback amount.
Is installment loan the same as an interest rate?
Installment loan is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does installment loan apply to?
Working Capital, Term Loan, SBA Loan, Equipment Financing.
Is there a worked example of installment loan?
Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.
What else should I read alongside installment loan?
Amortization, Balloon payment, Factor rate, Interest rate, Line of credit.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.