The interest rate is the rate at which the amount of money owed increases. You typically receive this money as a lump sum and then begin paying it back on a monthly basis. The principal is the overall amount of money being borrowed. Loan basicsīefore you take out a loan, you should be familiar with vocabulary terms used by lenders: Principal The APR includes the interest rate as well as fees and any other costs (i.e., closing costs or discount points), amortized on an annual basis. The annual percentage rate (APR) of a loan is slightly different, but more closely reflects actual annual costs. The interest rate is the annual cost of a loan to its borrower, expressed as a percentage of the principal borrowed. Personal loans and student loans are typically unsecured loans. These loans tend to have stricter borrowing requirements, lower borrowing limits and higher interest rates. Home equity loans and auto loans are typically secured loans.Īn unsecured loan does not require collateral, making it a safer option, especially if you have good credit and can qualify for the best interest rates.
However, because the lender is taking on less risk, these loans do tend to come with lower interest rates and better terms over all. These loans involve a great deal of risk since you could lose your asset if you do not pay the loan back. This is typically something like a house or vehicle. Secured loans require you to put up an asset as collateral. Loans come in secured and unsecured options. If you are having trouble qualifying for a federal loan, compare terms and rates on private student loans before choosing a lender, as these can vary widely. Federal student loans are generally better because they come with borrower protection and have standardized deferment and forbearance periods. There are both federal student loans and private student loans.
If you would prefer a loan payment calculator that delves into the granular details (such as amortization), use our more robust calculator. Because this is a simple loan payment calculator, we cover amortization behind the scenes.
The Bankrate loan payment calculator breaks down your principal balance by month and applies the interest rate you provide.