How do interest rates on personal loans work?

Think of interest rates like a rental fee for borrowing money. When you take out a personal loan, you agree to pay back the amount you borrowed (the principal) plus an extra percentage (the interest). This interest is how lenders make money.  

• Interest rates are usually shown as an Annual Percentage Rate (APR). This tells you the total cost of borrowing over a year, including any fees.  
• Lower interest rate = lower overall cost. So, it's important to shop around and compare rates from different lenders.  
• Fixed vs. variable interest rates: Some loans have fixed rates, which stay the same throughout the loan term. Others have variable rates, which can go up or down over time.

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