Question 1

How is a loan monthly payment calculated?

Accepted Answer

Monthly payment = [P × r(1+r)^n] / [(1+r)^n – 1], where P is the principal, r is the monthly interest rate, and n is the total number of payments.

Question 2

What is the difference between APR and interest rate?

Accepted Answer

The interest rate is the cost of borrowing the principal. APR (Annual Percentage Rate) includes the interest rate plus additional fees, making it a more complete measure of loan cost.

Question 3

How does loan term affect my payments?

Accepted Answer

A longer loan term lowers monthly payments but increases total interest paid. A shorter term means higher monthly payments but you pay off the loan faster and pay less interest overall.

Question 4

What is a personal loan typically used for?

Accepted Answer

Personal loans are commonly used for debt consolidation, home improvement, medical expenses, major purchases, or emergency expenses.

Question 5

What credit score do I need for a personal loan?

Accepted Answer

Most lenders require a minimum credit score of 580–640. Better credit scores (720+) qualify you for lower interest rates and better terms.

Question 6

Can I pay off a loan early?

Accepted Answer

Yes, most lenders allow early payoff. Check if your loan has a prepayment penalty. Paying extra toward the principal each month reduces total interest paid.

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