How loan payments are calculated
Personal loans, car loans and most installment loans are amortizing: every payment is the same, and each one covers that month's interest plus a slice of principal.
Payment = P × r / (1 − (1 + r)^−n)
P = amount borrowed · r = annual rate ÷ 12 · n = number of months. Borrow $15,000 at 12% for 36 months: r = 0.01, and the payment is 15,000 × 0.01 ÷ (1 − 1.01−36) = $498.21. Total interest is $2,935.73.
Interest rate or APR?
The interest rate is what you pay on the balance. The APR, annual percentage rate, adds upfront fees and spreads them over the term. Many online lenders charge an origination fee of 1% to 10% and take it out of the loan before paying you. On the example above, a 3% fee means you receive $14,550 but repay on $15,000, which raises the true APR from 12% to about 14.1%. Always compare loans on APR.
US lenders must show the APR in the Truth in Lending disclosure before you sign. In the UK and EU it is called the representative APR or APRC.
How much should you borrow?
Lenders look at your debt-to-income ratio: all monthly debt payments divided by gross monthly income. Under 36% is generally seen as healthy; many lenders stop at 40% to 50%. More useful is your own budget: a payment that still leaves room for savings and an emergency fund. Use "How much can I borrow" above to turn a comfortable payment into a loan size.
Your credit score sets the price
The same loan can cost twice as much depending on credit. Borrowers with excellent credit (720+) often see rates around 8% to 13%, while fair credit (630 to 689) can mean 18% to 25% and poor credit 30% or more, if approved at all. The "By credit score" chart shows what that means for your amount and term, using typical rate bands.
Checking your rate with a soft credit pull does not affect your score. Compare at least three lenders, including a local credit union, which by law cannot charge more than 18% on most federal credit union loans.