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Personal loans use simple amortization: each monthly payment covers the interest accrued during that period, with the remainder reducing your principal. Early payments are mostly interest; later payments are mostly principal.
Your interest rate depends primarily on your credit score. Borrowers with scores above 750 typically qualify for rates below 8–10%. Improving your score by even 50 points before applying can save hundreds or thousands in interest. Also compare origination fees — a low rate with a high fee may be worse than a higher rate with no fee.
Most lenders require a minimum score of 580–640 for approval, but you'll get the best rates with 720+. Many online lenders offer loans to borrowers with scores as low as 560, but at high APRs (25–36%). Credit unions often offer better rates for members with mid-range credit (640–700).
An origination fee is typically 1–8% of the loan amount, deducted from your proceeds or added to your balance. If you borrow $15,000 with a 3% origination fee, you receive $14,550 but pay back $15,000. This effectively increases your APR. Always factor origination fees into your rate comparison.
If your personal loan APR is lower than your credit card APR (often 18–29%), debt consolidation can save significant money and simplify payments. The key is to not accumulate new credit card debt after consolidating. A personal loan also has a fixed end date, giving you a clear payoff timeline.