Credit & Debt

Loans

A loan usually provides a set amount of money that is repaid over an agreed schedule with interest and possible fees.

4 min

Credit 101 • 09

A loan gives you a set amount of borrowed money.

You repay it according to an agreement that usually includes a term, interest rate and payment schedule.

Each payment can contain principal and interest.

Principal reduces the amount owed. Interest is the cost of borrowing.

Loan terms can include

01Amount borrowed02Interest rate03Term04Payment frequency05Fees06Security or collateral

Fixed and variable rates behave differently.

01

Fixed rate

The rate stays the same for the agreed period.

02

Variable rate

The rate can change when the reference rate changes.

Monthly payment alone does not show total cost.

Loan A$400 per month for 3 years
Loan B$300 per month for 5 years
Lower paymentNot automatically cheaper
CompareTotal interest and fees

Longer repayment can lower the payment while increasing the total interest paid.

Stretching the debt over more time can make the monthly budget easier but the overall borrowing cost higher.

Compare loans using

01Annual interest rate02Term03Total cost04Payment amount05Fees06Prepayment rules

Remember this

A loan is a package of amount, rate and time.

Do not judge the package by the monthly payment alone.

Lesson complete

Reviewed 2026-08-18

Sources

Financial Consumer Agency of CanadaPersonal loans ↗Financial Consumer Agency of CanadaWhat to consider before borrowing money ↗
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