Question

With an installment loan, the borrower

a. Receives the full amount of money upfront and then makes regular payments to repay the loan and interest.
b. Is told how much they can potentially borrow, and then using a debit card or check book, the borrower can access the money and repay the loan and interest through flexible repayments.
c. Can receive a short-term loan from a bank or credit union by pledging an upcoming automatic account deposit, such as a paycheck, as repayment of the loan and fees.
d. None of the above are installment loans.

Answer 1

An installment loan is where the borrower receives money upfront and repays it with interest over time, much like a bank loan for a firm or an individual loan for a major purchase such as a car or a house.

Step-by-step explanation:

With an installment loan, the borrower receives the full amount of money upfront and then makes regular payments to repay the loan and interest. This is how a bank loan for a firm typically works, which is similar to an individual borrowing money to buy a car or a house.

The firm or individual borrows a certain sum and repays it, with interest, over a predetermined schedule. If repayments are not made, the lender can take legal action to recuperate the funds, potentially requiring the sale of assets such as buildings or equipment.

It is important to contrast this with a credit card, which is considered a short-term loan where the credit card company transfers funds to the seller, and the user repays the company, typically at the end of the month.