Loans

Insurance

Credit Cards

Savings

Learn

Home Credit Score About Fiona FAQ & Support Contact Us
Fiona Logo
Loans
Personal Loans Student Loan Refinance Auto Refinance Mortgages Mortgage Refinance
Credit Cards
Savings
Credit Score
Learn

>

Articles

How Are Personal Loan Repayments Structured?

How Are Personal Loan Repayments Structured
Fiona Staff3/26/2020

Debt amortization may sound like an intimidating financial term, but it’s actually a fairly straightforward aspect of how personal loans are structured. Simply put, amortization is a schedule used to pay off the principal amount of a loan, as well as the calculated APR (annual percentage rate), which includes interest charged on the loan plus associated fees. Understanding how an amortization schedule works can help in deciding which terms make the most sense when comparing personal loan offers.

Fiona matches consumers with lenders offering loans tailored to their financial situation.

(button: /products/loans text: SEE RESULTS)

Typically, personal loans have a fixed APR, which is reflected in the amortization schedule for the loan’s repayment. As a result, personal loan offers that lay out their repayment terms provide transparency to the consumer, regarding how much they will owe on a monthly basis if they keep their payments timely and in full.

When a borrower takes out a personal loan, their repayments are applied to two buckets: the principal and the APR. During the earlier months of paying back a personal loan, the majority of each monthly payment goes towards paying the APR. This allows lenders to recoup their investment, in the form of interest and fees, before a borrower pays back the actual funds they’ve borrowed in full. As a result, once the borrower has paid off the APR portion, the remainder of what they owe the lender in monthly payments is used to pay off the loan’s principal amount. 

Fiona pre-approves you for loan offers from top providers through just a soft pull of your credit profile — meaning your credit score is unaffected.

(button: /products/loans text: GET MATCHED)

Amortization incentivizes lenders to lend money while, simultaneously, incentivizing borrowers to pay off their loans in full. An amortization schedule covers the lender’s risk by stacking the profitable portion of loan repayment toward the front. This safety net encourages them to take the risk of lending the principal in the first place. 

For borrowers paying off a personal loan with a fixed APR, an amortization schedule provides peace of mind that all of their monthly payments will be the same amount over a set period of time. While the borrower will be paying the interest up front, they could be encouraged by picking a repayment plan that matches their financial needs when comparing personal loan offers in the first place. In addition, some borrowers also have the option for reamortization, which allows them to adjust their repayment period (to either shorter or longer) as long as it doesn’t exceed the maximum term limit. 

Bottom Line

Essentially, fixed-APR personal loans have amortization baked into their repayment plans, so it makes sense to understand how the process works. While lenders are motivated to recoup their investments early on, borrowers are incentivized by fixed monthly payments, which make the habit of paying off interest seem less burdensome. For consumers interested in personal loans, it’s worth comparing offers to see which loan terms work best for you


You might also be interested in

More Topics
Unsecured Loans Illustration
Personal Loans

Disclaimer: The material provided on this site is not intended to provide legal, investment, or financial advice or to indicate the suitability of any Even Financial product or service to your unique circumstances. For specific advice about your unique circumstances, you may wish to consult a qualified professional. Any information or statistical data sourced by Even Financial through hyperlinks, from third-party websites, are provided for informational purposes only. While Even Financial finds these sources to be accurate, it does not endorse or guarantee any third-party content.