What to know before taking a personal loan in 2025

Summary: A personal loan is an unsecured form of credit that lets borrowers access a fixed amount of money and repay it over a set time period. These loans tend to come with fixed interest rates and can be used for various purposes—from auto repairs to medical financing. Before you apply, it’s important to understand how personal loan interest rates, repayment terms, and loan calculations work.

What is a personal loan?

A personal loan is a type of installment loan that typically doesn’t require collateral. Borrowers receive a lump sum of money from a lender and repay it through fixed monthly payments over a set term.

Personal loans also have competitive fixed interest rates, making them an affordable borrowing option, especially compared to credit cards. These loans can be used for multiple purposes, such as medical expenses, home improvements, and debt consolidation.

How do I apply for a personal loan?

To apply for a personal loan, you'll need to provide personal details, employment information, and financial documentation. Many online platforms offer pre-qualification tools that let you "check your rate" and gauge your approval odds before you apply, as well as comparison features that let you find the best loan offers quickly.

What is APR?

Annual percentage rate (APR) is the total yearly cost of a personal loan, including fees and interest. APRs for personal loans typically range from 5.00% to 35.99%, depending on the applicant's credit profile and the lender’s criteria.

How long do I have to repay the loan?

Repayment terms for personal loans usually range from 12 months to 84 months, although some companies offer shorter options and lengthier repayment terms up to 144 months.

The loan duration affects your monthly payment amount and total interest paid. Shorter terms result in higher monthly payments but help borrowers save on interest costs.

Can I use a personal loan for a car or motorcycle?

Yes, you can use a personal loan to finance a car or a motorcycle. However, you'll want to compare loan costs for personal loans with traditional auto loans or motorcycle loans, which may offer lower rates because they are secured by the vehicle.

How does my credit score affect my options?

A higher credit score improves your chances of qualifying for the best loans with lower interest rates. Lower scores may still qualify, but usually at a higher APR. If you're unsure of how your credit score will impact your personal loan application, look to comparison platforms that let you prequalify or "check your rate" before you apply.

Can I repay early without penalties?

Many lenders allow early repayment of personal loans with no additional fees, which can save on interest. Always verify if prepayment penalties apply before signing a loan agreement.

How to calculate a personal loan: step-by-step example

To estimate your monthly payment, use this formula:

Monthly Payment = [P x r x (1 + r)^n] / [(1 + r)^n – 1]

Where:

• P = loan amount
• r = monthly interest rate (APR ÷ 12 ÷ 100)
• n = number of monthly payments

Example:

Borrowing $10,000 at a 10% APR for 36 months:

• P = $10,000
• r = 0.0083 (10% ÷ 12 ÷ 100)
• n = 36 months

Monthly payment ≈ $322.67

Total repayment over 36 months = $11,616.12

While you should use an online loan calculator for convenience, this formula helps you understand the math behind each offer.

What to compare when choosing a personal loan

APR – Lower interest rates reduce interest charges over time

Term length – Longer terms = smaller payments, more total interest

Fees – Watch for origination, prepayment, and late payment fees

Loan amount limits – Ensure your need falls within the lender’s range

Funding time – Some lenders fund loan offers as soon as the same business day