What installment credit is (first half). Installment credit is a fixed principal amount borrowed up front and repaid in a series of scheduled payments over a defined term (for example, auto loans, mortgages, many personal loans). Each payment typically contains some interest plus principal; over time the interest portion declines while principal repayment increases if the loan is amortizing. This structure creates predictable monthly obligations that make budgeting easier than with revolving credit, which varies with new charges. From a lender’s view, installment loans show a steadily declining balance when payments are made on schedule, which can be positive evidence of repayment behavior.

Practical implications and scoring (second half). For borrowers, the advantages include fixed payments (unless variable-rate), clearer payoff dates, and often lower interest rates compared with unsecured revolving debt for the same credit risk. However, because installment loans add a fixed monthly payment, they raise your recurring obligations and can affect affordability metrics (like DTI). In credit scoring, a healthy mix of installment and revolving accounts can be beneficial, but taking unnecessary installment debt to “improve mix” is generally a poor strategy. Use installment loans for purchases that match the product (car, house) rather than to mask unaffordable consumption.