Loan Basics
Before comparing a single offer, it helps 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 payment. Learn these once and every offer becomes easier to read.
Start here if: You want the vocabulary and the math before you look at a single offer.
How a Personal Loan Works, From the First Quote to the Last Payment
One hypothetical loan, followed from the moment the money is needed to the day the balance hits zero, with the decisions and paperwork at each stage.
The loan basics guides, in a sensible order
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Step by step
How a Personal Loan Works, From the First Quote to the Last Payment
One hypothetical loan, followed from the moment the money is needed to the day the balance hits zero, with the decisions and paperwork at each stage.
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Worked example
APR vs. Interest Rate: Why the 11% Offer Can Cost More Than the 13% One
The interest rate is the price of the money. The APR adds certain fees. Here's how to use both, and when even the APR points you the wrong way.
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Comparison
Loan Term and Total Cost: What a Lower Monthly Payment Really Buys
The same $15,000 loan across five terms, what each extra year of payments costs, and a practical way to pick a term you can live with.
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Comparison
Secured vs. Unsecured Loans: What You Pledge and What You Risk
A secured loan can mean a lower rate or an easier approval. It also means a specific thing you own is on the line. Here's how to weigh it.
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Explainer
Fixed vs. Variable Rates: How Variable Rates Move and When Each Fits
A variable rate is a formula, not a mystery. Once you know the formula and the caps, you can price the worst case before you sign.
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Questions answered
Paying Off a Loan Early: When an Extra Payment Saves the Most
The questions people actually ask about paying a loan off early, answered bluntly: prepayment penalties, how lenders count interest, the Rule of 78s, and when an extra payment saves the most.
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 expresses the total as a yearly rate. When a loan has fees, the APR is 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 your 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 without a penalty, and paying early cuts the interest you pay. 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 total cost of a fixed-rate loan, including an origination fee and extra payments, then compare two scenarios side by side.
- Interactive explainer
APR ExplainerMove the sliders and see how an origination fee and a shorter term push the APR above the interest rate, and why.
- Budget planner
Affordability ExplorerStart from your own month: income, fixed costs, and a cushion. See a payment range you're comfortable with and what loan amounts it covers at different rates and terms.
- APR (annual percentage rate)
- The yearly cost of credit expressed as a percentage, including interest and most required fees such as an origination fee. Lenders must disclose it under the Truth in Lending Act, which makes it the best single number for comparing loans of the same amount and term.
- Interest rate
- The percentage a lender charges on the balance you owe, before fees. On a fixed-rate installment loan it determines how much of each payment goes to interest. It is usually lower than the APR when the loan has fees.
- Principal
- The amount you borrow, or the part of the balance still owed, not counting interest. Each payment on an amortizing loan pays some interest and some principal.
- Amortization
- Paying off a loan in regular installments that cover both interest and principal. 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 a loan, usually stated in months. A longer term lowers each payment and usually raises the total interest you pay.
- Total cost of borrowing
- Everything you pay beyond the amount you actually receive: interest plus fees. On a disclosure it shows up as the finance charge.
- CFPB: Ask CFPB
The Consumer Financial Protection Bureau's plain-language answers to common credit and loan questions.
- Federal Reserve Consumer Help
Information about banking rules and how to submit a complaint about a bank the Federal Reserve supervises.
- MyCreditUnion.gov
The NCUA's consumer site, including how credit union loans and membership work.