A loan is a sum of money that one party (usually a bank, financial institution, or lender) lends to another party (the borrower) with the expectation that the borrower will repay it over time, usually with interest. Our Loan Calculator will help determine the best loan.  Here’s a breakdown of how loans work:

Principal and Interest

Principal:

This is the initial amount of money borrowed.

Interest:

The cost of borrowing the money. The lender charges interest as a percentage of the principal, which is added to what you pay back. This is usually calculated annually (the *annual percentage rate* or *APR*).

Types of Loans

Secured Loans:

Backed by collateral (e.g., a house in a mortgage, or a car in an auto loan). If you fail to repay, the lender can take the asset.

Unsecured Loans:

Don’t require collateral (e.g., personal loans, student loans, credit cards). These generally have higher interest rates since they’re riskier for lenders.

Loan Term

The term is the period over which the borrower repays the loan. For example, mortgages might have 15- or 30-year terms, while personal loans might be a few months to several years.

Repayment Structure

Fixed-Rate Loans:

The interest rate stays the same throughout the loan term, meaning your monthly payments remain consistent.

Variable-Rate Loans:

The interest rate can change based on market conditions, which can lead to fluctuating payments.

Payment Schedule

Loans typically have regular monthly payments. A portion of each payment goes toward reducing the principal, while the rest covers interest.

Amortization

Loans are often amortized, meaning payments are structured so that you pay more interest at the beginning, with more of your payment going toward the principal over time.

Application Process

To get a loan, you typically need to apply with a lender and provide financial information (income, credit score, etc.). The lender evaluates your creditworthiness to determine the loan amount, term, and interest rate.

Example
Suppose you take a $10,000 loan with a 5% interest rate for a term of 3 years. You’ll repay the principal and interest in monthly installments, each going partly toward the principal and partly toward interest. The Loan Calculator will show you all the details