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Every fixed-rate instalment loan uses the same amortisation formula. The lender takes the amount borrowed, the monthly interest rate (the annual rate divided by twelve) and the number of payments, and solves for the single fixed payment that clears the balance exactly on the final month.

What changes month to month is the split inside that payment. Interest is charged on the balance you still owe, so in month one most of the payment is interest and very little touches the principal. As the balance falls the interest portion shrinks and the principal portion grows, which is why the last year of any loan repays far more capital than the first.

The interest rate is the price of the money. The APR bundles the rate together with origination fees, administration charges and anything else the lender deducts up front, expressed as a single annualised percentage. A 9% loan with a 5% origination fee has an APR closer to 12%.

Use the interest rate in this calculator to model the payment, then compare offers on APR. If a lender deducts the origination fee from the amount advanced, borrow the gross figure you need — a $10,000 loan with a 5% fee only puts $9,500 in your account.

Stretching a loan over a longer term always lowers the monthly payment and always raises the total interest. A $15,000 loan at 10% costs about $484 a month over three years and roughly $2,430 in total interest; over five years it drops to about $319 a month but the interest bill rises to roughly $4,120.

The honest way to choose is to pick the shortest term whose payment you can service comfortably in a bad month, not the longest term you can technically afford in a good one. Run both and look at the total-paid figure, not just the payment.

Extra payments only reduce interest if the lender applies them to principal rather than treating them as an advance on next month's instalment. Most reputable lenders do the former if you ask; some do the latter by default. Check the loan agreement, and make extra payments as a separate transaction marked "principal only" where the lender supports it.

Also check for a prepayment penalty. They are rare on personal loans and common on some auto and mortgage products. Where one exists, it is usually a percentage of the outstanding balance or a set number of months' interest, and it can wipe out the saving from paying early.

An unsecured personal loan is priced almost entirely on your credit profile, because the lender has no asset to repossess. Rates typically run from single digits for excellent credit to well above 25% for thin or damaged files.

Secured borrowing — a home equity loan, a car title loan, a 401(k) loan — carries a lower rate because the lender has recourse. That lower rate is not free: you are converting an unsecured debt, which is survivable if your circumstances collapse, into one that can cost you your house, your car or your retirement savings. Compare the rate saving against that risk explicitly rather than defaulting to the cheapest number.