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Monthly payment is calculated with the amortization formula: M = P[r(1+r)^n] / [(1+r)^n - 1], where P is the loan principal, r is the monthly interest rate (annual rate ÷ 12), and n is the total number of monthly payments (years × 12). For example, a $10,000 loan at 6.5% for 5 years gives a monthly payment of $195.66.

The interest rate is the cost of borrowing the principal only. APR (Annual Percentage Rate) includes the interest rate plus fees and other charges, giving a more complete picture of the loan's annual cost. By law, lenders must disclose the APR. Always compare APRs — not just interest rates — when shopping for loans.

Most lenders require a minimum credit score of 580–640 for personal loans, but the best rates go to borrowers with scores of 720+. With a 580 score you may qualify but at a high rate (15%–30%+ APR). Some credit unions offer loans to members with lower scores. Source: CFPB.

Extra payments go directly toward the principal balance, which reduces the total interest you pay and shortens your loan term. For example, paying an extra $50/month on a 5-year $10,000 loan at 7% reduces the term by about 5 months and saves roughly $150 in interest.

Many personal loans have no prepayment penalty, but some lenders charge a fee (typically 1%–5% of the outstanding balance). Always check your loan agreement before making early payoff. Federal student loans and most federal regulations prohibit prepayment penalties on many loan types.

Amortization is the process of spreading loan payments across the life of the loan. Each payment covers both interest and principal. Early payments are mostly interest; later payments are mostly principal. An amortization schedule shows the exact breakdown for every monthly payment.