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Loan terms can be confusing, and small differences add up over many years. These answers cover the questions people ask most before and after signing.

What is the difference between interest rate and APR?

The interest rate is the cost of borrowing the principal. The annual percentage rate (APR) folds in certain fees and costs, so it gives a fuller picture of what the loan costs. When comparing offers, APR is usually the better yardstick, though you should still look at the fee details.

How does my credit score affect a loan?

Lenders use your credit history to judge the risk of lending to you. A higher score generally means better rates and terms. Check your credit reports for errors well before applying; you can get free reports through the official site, annualcreditreport.com.

What is amortization?

It is the schedule by which a loan is repaid in regular installments. In the early years, most of each payment goes to interest. Over time, more goes to principal. That is why extra payments early in a loan save the most interest.

Can I pay off a loan early?

Usually, yes. Some loans charge a prepayment penalty, so check the contract. If there is no penalty, paying early can save interest. Confirm with the lender that extra payments are applied to principal.

Should I refinance?

Refinancing replaces a loan with a new one, often to get a lower rate or change the term. Weigh the savings against closing costs and the fact that restarting a long term can increase total interest even if the payment falls. Calculate how long it will take to recoup the costs.

What does it mean to co-sign a loan?

A co-signer agrees to be fully responsible if the borrower does not pay. It can help someone qualify, but the co-signer's credit and finances are at risk. Only co-sign if you could afford to pay the debt yourself.

What happens if I default?

The lender may report it to the credit bureaus, charge fees, take collateral on a secured loan, or pursue collection. Canceled debt can also be taxable income in some circumstances, so talk to us before settling a debt for less than you owe. Read more on consumerfinance.gov.

If you have a loan decision to make, contact our office and we can review the numbers with you.