Personal loans are unsecured installment loans that provide a lump sum of money repaid in fixed monthly payments over a set term. Because they are unsecured, lenders rely heavily on your credit score and income to determine eligibility and interest rates. Borrowers with excellent credit can qualify for rates as low as 5-7%, while those with fair credit may see rates above 15%.

The monthly payment on a personal loan is calculated using the standard amortization formula, which ensures each payment covers both interest and principal so the loan is fully repaid by the end of the term. In the early months, a larger share of each payment goes toward interest, while later payments apply more toward the principal.

Personal loans can be a smart choice for debt consolidation, home improvements, or large purchases because they typically carry lower rates than credit cards. However, it is important to compare the total interest cost across different terms and lenders. A lower monthly payment on a longer term may feel easier, but it often results in significantly more interest paid over the life of the loan.