The short answer

A personal loan provides a fixed amount of money that is typically repaid through scheduled monthly installments. The amount borrowed, annual borrowing rate, fees and repayment term determine the payment and total cost.

How a personal loan is structured

Most personal loans begin with four core pieces: the amount borrowed, the annual borrowing cost, the repayment term and the payment schedule. The lender may also charge an origination fee or other disclosed charges.

  • Principal: the amount financed or borrowed.
  • Term: the amount of time available to repay the loan.
  • Monthly payment: the scheduled installment due each month.
  • Total repayment: the sum of scheduled payments over the full term.

APR and interest rate are related—but not always identical

The interest rate is used to calculate interest on the outstanding balance. APR is intended to represent the annualized cost of credit and may incorporate certain fees. That is why comparing APR can be more informative than comparing the interest rate alone.

The exact relationship depends on the loan structure and disclosures. A loan with an origination fee may provide less cash than the face amount or add to the effective borrowing cost.

How the monthly payment changes

Holding the amount constant, a higher annual rate generally increases the monthly payment and total interest. Extending the term can lower the monthly payment but usually creates more time for interest to accumulate.

Illustrative example

A $10,000 loan at a 12% annual rate over 36 months, assuming no separately modeled fees.

Loan amount
$10,000
Example annual rate
12.00%
Estimated payment
$332.14
Estimated total interest
$1,957.15

Run your own scenario

Change the loan amount, example APR and term to estimate the monthly payment and total interest.

Open the loan payment calculator

Fees can affect the cash received and total cost

An origination fee may be deducted from the proceeds or otherwise reflected in the loan disclosures. A borrower who requests $10,000 may receive less than $10,000 in usable cash if a fee is withheld from the amount funded.

Before proceeding, compare the amount requested, amount financed, net proceeds, APR, payment schedule and total repayment.

What to compare before borrowing

  • APR and any separate fees
  • Monthly payment and whether it fits the budget
  • Repayment term and total interest
  • Amount actually received after fees
  • Late-payment and returned-payment terms
  • Whether early repayment creates any charge

Sources and methodology

This guide uses the sources listed below. UnitedStatesCredit records the date each source was reviewed and revises the guide when a material fact changes. Read the content methodology.