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how do loans work
money

How Do Loans Work?

When you borrow money in the form of a loan, you will need to pay back the amount you borrowed plus interest. This repayment typically occurs over the life of your loan, whether that’s three years or 30 years.

Before you sign the agreement to get your loan, it’s useful to understand exactly how your payment will be applied to your loan over time. Take a look.

Illustration showing that after you receive a loan, over time you will have to pay back that same amount, or principal, plus interest.
Illustrated text showing that at Earnest, we use simple interest, in which each day you are charged 1/365 of your % APR. We don't compound, or charge interest on interest.
Diagram showing that each of your monthly paments covers that month's interest, plus some of the principal.
Diagram showing how the principal gets smaller with each payment, resulting in less interest accruing. Therefore, later payments include more principal, until your final payment.

 

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