Angela Mae

Tue, Jun 24, 2025, 8:01 AM5 min read

A personal loan can be a great way to pay for things like big-ticket items, unexpected bills or even small business expenses. Some lenders offer loans of only around a few hundred or thousand dollars, but others can go up to $100,000 or even more. Any personal loan is a commitment, but the more you borrow, the more you’re responsible for paying back.

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Before you take out a personal loan, there are certain key terms you should know. These are some of the most important ones, according to financial experts Kyle Enright, president of Achieve Lending, and Trevor Smith, corporate branch manager at Wasatch Peaks Credit Union.

Also see 10 key questions to ask before taking out a personal loan.

Personal loans come with an interest rate, which is usually based on factors like your credit score and income. The higher the interest rate, the more you’ll end up paying the lender to borrow money — especially if you have a longer repayment term.

You should also consider the loan’s APR. “Borrowers need to know the interest rate on the loan, but APR (annual percentage rate) provides a better figure for comparison and evaluation purposes,” Enright said. “APR is the total annual cost of borrowing, including the interest rate and any fees.”

Enright noted that interest rates — not APRs — are generally between 8% and 36%. Some loans may have a higher rate.

Learn More: 3 Ways Personal Loans Are Helping People Reach Their Financial Goals in 2025

Your debt-to-income (DTI) ratio calculates how much of your monthly income goes toward your debt payments. It’s expressed as a percentage. Lenders use it to determine how well you manage your debts and may base the loan amount on it.

“Higher ratios are associated with greater risk of missing or late payments on the loan,” Enright said. “At Achieve, we look for a debt-to-income ratio of 45% or lower, but again, every lender is different.”

You can get your DTI by dividing your total monthly debt payment amount by your monthly income. Include things like your mortgage or rent, other loans, credit cards, alimony, and child support in your total monthly debts.

Your credit score is a three-digit number that lenders use to determine whether to approve you for a loan — and at what rates and terms. The better your score is, the better your approval odds.

“In most cases, applicants with higher credit scores will receive the lowest rates,” Enright said. “At Achieve Lending, for example, borrowers should have a minimum credit score of 620, but many lenders will lend to consumers with lower scores; they will just be offered a higher interest rate.”