Tobi Opeyemi Amure

Tue, Jun 10, 2025, 7:01 AM3 min read

Choosing a personal loan is a major financial decision that can impact your budget for years. Many Americans turn to personal loans for everything from debt consolidation to emergency expenses, but not everyone fully understands the terms involved. Knowing what to look for in a loan agreement can help you avoid hidden fees and unfavorable conditions.

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Personal loans are usually unsecured, meaning you do not have to put up collateral, but that does not mean all loans are the same. Lenders set their own requirements and fees, so it is important to compare offers carefully before signing anything. Learning the most important terms will enable you to make a more informed choice and protect your financial future.

The annual percentage rate, or APR, is the yearly cost of borrowing money, including both interest and mandatory fees. According to Bank of America, lenders must disclose the APR to help Americans compare loans on an equal basis, as required by the Federal Truth in Lending Act.

A borrower can use the APR when comparing personal loans to decide which is best for them. A lower APR means the loan will cost less overall, so always check this number before committing.

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The interest rate on a personal loan is the percentage charged on the principal amount borrowed. Unlike an APR, an interest rate doesn’t include fees.

The interest rate can be either fixed or variable. A fixed rate stays the same for the entire loan term, while a variable rate can change during the loan term.

Knowing your interest rate can help you estimate your monthly payments and the total cost of your loan.

The loan term, or tenure, is the length of time you have to repay the loan, and it’s usually measured in months or years. Shorter terms mean higher monthly payments but less total interest, while longer terms lower your monthly payment but increase the total interest paid.

Always choose a loan term that fits your budget and financial goals.

An origination fee is charged by a personal loan lender when the loan is taken out. It’s the cost of processing the loan application, and it is usually a percentage of the loan amount. According to LendingTree, it is typically between 1% and 10%. Some lenders deduct this fee from the loan proceeds, so you’ll receive less money than you borrow.