Loan Basics
Before you read a single offer, it pays to know how a loan is built: the amount you borrow, the rate, the fees, the term, and the schedule that turns them into a monthly payment. Learn these once and every offer gets easier to read.
Start here if: You want the numbers and the vocabulary straight before you read a single offer.
How Personal Loans Work, From Payout to Payoff
Trace a single loan from the cash that lands to the last payment. Learn the numbers once and you can check an offer instead of trusting it.
The loan basics guides, in a sensible order
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Explainer
How Personal Loans Work, From Payout to Payoff
Trace a single loan from the cash that lands to the last payment. Learn the numbers once and you can check an offer instead of trusting it.
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Worked example
APR vs. Interest Rate: When the Lower Rate Costs More
The interest rate prices the money. The APR adds the fees you're required to pay. Here is how to use both, plus the one case where even the APR points the wrong way.
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Worked example
Loan Term vs. Total Cost: The Trade-off That Decides What You Pay
A longer term shrinks the monthly payment and swells the total interest. Here is that trade in dollars, and how to pick a term yourself instead of inheriting one.
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Comparison
Secured vs. Unsecured Loans: Which One, and When
One kind is backed by an asset you could lose; the other by your record alone. That single difference moves the rate, the risk, and who gets approved.
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Comparison
Fixed vs. Variable Rates: What Changes, and What Doesn't
A fixed rate hands the risk of rising rates to the lender. A variable rate keeps it with you. Here is who each suits and how to price the risk before you sign.
Questions people ask about loan basics
What's the difference between the interest rate and the APR?
The interest rate is what the lender charges on the balance. The APR folds in most required fees, such as an origination fee, and states the total as a yearly rate. When a loan has fees, the APR runs higher than the rate. See a worked example.
Is a lower monthly payment always better?
No. A lower payment usually comes from a longer term, which means paying interest for more months. It can be the right call for a tight budget, but it usually raises the total you repay. Compare terms side by side.
Can I pay a loan off early?
Many personal loans allow it with no penalty, and paying early cuts the interest you owe. Check the agreement for a prepayment penalty, and remember that a fee taken out at the start is usually not refunded.
- Calculator
Loan Payment CalculatorEstimate the monthly payment and full cost of a fixed-rate loan, including an origination fee and extra payments, then set two scenarios side by side.
- Explainer
APR & Borrowing-Cost ExplainerEnter a loan with a fee and watch the interest rate become an APR, so you can see what the fee really adds to the cost of borrowing.
- Planner
Affordability ExplorerStart from your take-home pay and regular costs to see what room is left for a new payment, without any one-size debt-to-income rule.
- APR (annual percentage rate)
- The yearly cost of a loan as a percentage, including the interest rate plus most required fees. On a loan with fees, the APR is higher than the interest rate, which makes it the better number for comparing offers of the same amount and term.
- Interest rate
- The yearly price of borrowing the money itself, charged on the balance you still owe. It does not by itself include fees, which is why the APR can be higher.
- Principal
- The amount you borrow, before interest and fees. Each payment is split between interest and principal; paying down principal is what reduces the balance.
- Amortization
- The schedule that pays a loan off in equal payments. Early payments are mostly interest; later ones are mostly principal, because interest is charged on a shrinking balance.
- Loan term
- How long you have to repay, usually in months. A longer term lowers the monthly payment but almost always raises the total interest you pay.
- Total cost of borrowing
- Everything you repay minus the amount you actually received: interest plus fees, in dollars. The clearest way to compare loans with different rates, terms or fees.
- CFPB: Ask CFPB
The Consumer Financial Protection Bureau's answers to common credit and loan questions.
- Federal Reserve Consumer Help
How banking rules work and how to file a complaint about a bank the Federal Reserve supervises.
- MyCreditUnion.gov
The NCUA's consumer site, including how credit union loans and membership work.