Which of the following is a true statement describing the benefits of an installment loan?

• A. Installment loans require the full loan amount to be repaid in a single lump sum at the end of the term.
• B. Installment loans allow borrowers to repay the loan in fixed, regular payments over a set period.
• C. Installment loans typically have variable interest rates that change every month.
• D. Installment loans do not require any interest payments.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of an installment loan. An installment loan is a type of loan where the borrower agrees to repay the loan amount in fixed, regular payments (installments) over a predetermined period. These payments typically include both principal and interest.
2. Step 2: Analyze the first statement: 'Installment loans require the full loan amount to be repaid in a single lump sum at the end of the term.' This is incorrect because installment loans are repaid in regular installments, not a single lump sum.
3. Step 3: Analyze the second statement: 'Installment loans allow borrowers to repay the loan in fixed, regular payments over a set period.' This is correct because it accurately describes the repayment structure of installment loans.
4. Step 4: Analyze the third statement: 'Installment loans typically have variable interest rates that change every month.' This is incorrect because installment loans often have fixed interest rates, providing predictable payment amounts.
5. Step 5: Analyze the fourth statement: 'Installment loans do not require any interest payments.' This is incorrect because installment loans include interest payments as part of the regular installments.