Final answer:
Installment credit is typically considered a fixed expense since it involves consistent payments that do not change over the duration of the loan, similar to other fixed costs such as rent on a factory or retail space.
Step-by-step explanation:
Installment credit is a loan that offers a borrower a fixed, or finite, amount of money over a specified period of time. It can indeed be considered a fixed expense because it requires regular payments of a set amount for the duration of the loan term.
Fixed costs, such as rent on a factory or retail space, do not change in response to production levels. Similarly, with installment credit, the amount you owe each month does not fluctuate with your level of consumption.
The monthly payment comprises both interest and principal, and over time, the portion that goes towards the principal will gradually reduce the outstanding balance, eventually leading to the loan's repayment.
In the context of a budget, installment credit affects how individuals and households allocate their disposable income. Fixed expenses like installment payments are allocated first, with the remaining income going towards variable expenses, savings, or other forms of consumption.