Which of the following describe an installment loan? Select all that apply.Group of answer choicesA loan that is repaid in varying amounts.A loan that is repaid in equal amounts.A loan that must be repaid in a specific period of time (e.g. 5 years).An open line of credit or loan that is not limited to a specific period of time.
Question
Which of the following describe an installment loan? Select all that apply.Group of answer choicesA loan that is repaid in varying amounts.A loan that is repaid in equal amounts.A loan that must be repaid in a specific period of time (e.g. 5 years).An open line of credit or loan that is not limited to a specific period of time.
Solution
An installment loan is described by the following:
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A loan that is repaid in equal amounts: This is a characteristic of installment loans. The borrower agrees to repay the loan in a series of fixed payments, typically monthly.
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A loan that must be repaid in a specific period of time (e.g. 5 years): This is also a characteristic of installment loans. The repayment period is agreed upon before the loan is disbursed, and it can range from a few months to several years.
The other options do not describe an installment loan:
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A loan that is repaid in varying amounts: This is not typically a characteristic of installment loans. While some loans may have varying repayment amounts, installment loans usually have fixed payments.
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An open line of credit or loan that is not limited to a specific period of time: This describes a revolving credit, like a credit card, not an installment loan. Installment loans have a set end date, while revolving credit allows you to borrow, repay, and borrow again up to your credit limit.
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