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Loans are paid in pre-defined increments over the term defined. Say you make monthly payments towards your car loan, each payment will cover the interest due and some amount of the principal. The more money you can apply to a payment means more principal you knock out in each payment.

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Your creditworthiness will play a role in the interest rate offered. If you have a good credit score, the lender will have more peace of mind that you will repay your loan, and offer you a lower interest rate or maybe a larger amount of money.

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If you have a lower credit score you might want to build your score back up before submitting a loan application to see a better loan offer.

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A loan is the lending of money by one or more individuals, organizations, etc. to other individuals, organizations, etc. When you borrow money in the form of a loan, you will need to pay back the loan amount plus interest within an amount of time. This repayment typically occurs over the life of your loan, whether that’s three years or 30 years.

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The interest rate is the proportion of a loan that borrower pays in addition to the principal due. Think of it as the fee you pay to the lender for using its money. There are many different types of interest rates

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The most simple rates are just multiplied to the principal at each payment period to find the interest due. For example, if you borrow $2,000 from a family member and they ask for 5% interest when you repay them for the loan in a year, at the end of the repayment term you would owe them $2100.

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Common for credit cards and savings accounts, compound rates charge interest on the principal and on previously earned interest. For example, if you borrow $2,000 at a rate of 5% over a year, you would owe $100 in interest in the first year. In the second year, you would owe $2,205, as you would calculate a 5% interest payment on $2,100 from the previous year.

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Amortized loans are designed so the borrower pays a larger amount of interest, rather than the principal, at the beginning of the loan. Over time the amount of principal in each payment will increase, widdling down the principal and amount of interest charged on the principal. While the payments due stay the same over the years, what the payment goes toward (principal vs. interest) shifts during the life of the loan. These are popular for car or home loans.

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A fixed interest rate will be defined upfront and stay the same over the term of the loan. This makes budgeting for payments predictable.

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Variable rates change over the life of the loan to reflect changes in the market interest rate. This means that the interest rate for your loan could go down or up over the term of your loan.

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Before you can take out a loan, secured on unsecured, you first have to apply. Financial institutions and lenders will do a soft credit pull first to confirm you meet the minimum requirements to apply. If you move forward with an application, the lender will do a hard credit check to review your credit history.

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If you want to review your own credit history you can request a credit report from one of the major credit agencies, usually online. You can request a free report each year from each lender, so you can see what a lender will be reviewing.

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Paying down your principal and wrapping up a loan quickly means you can save money you would have spent on interest payments. The longer you are paying off the loan, the more interest builds up, and in the end the more you pay back.