Personal loan.
In plain English
A personal loan is an installment loan: you receive a lump sum up front and pay it back in equal monthly payments over a fixed term, often two to seven years. Most personal loans are unsecured, meaning no collateral like a car or house backs them, so the lender relies on your credit and income. The interest rate is usually fixed, so your payment stays the same each month. People use personal loans to consolidate higher-rate credit card debt, cover a large expense, or fund a one-time cost.
01Why it matters
A personal loan can lower your interest cost compared to credit cards, but the total you repay depends heavily on the rate, the term, and any origination fee, so the sticker payment is not the whole story.
02The math, step by step
You borrow $10,000 over 3 years (36 months) at a fixed rate, so your monthly payment is the same every month. Stretching the same $10,000 to 5 years lowers the monthly payment but raises the total interest you pay, because you are borrowing the money for longer.
03What this is NOT
A personal loan is not revolving credit. You get one lump sum and the balance only goes down as you pay. A credit card or line of credit lets you borrow, repay, and borrow again up to a limit.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
Educational tool. Answers come only from ClearMoneySchool's published glossary and are not advice. Why we never give advice