The cost of personal loans
“Patience can be a big asset when it comes to managing money." — Laura Hendrix
By Mary Hightower
U of Arkansas System Division of Agriculture
May 26, 2025
Fast facts
- Shop around for low APR, fees
- Consider saving rather than borrowing
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LITTLE ROCK — While a personal loan can help consumers do a variety of things: pay off medical bills, cover emergency expenses or make the vacation of a lifetime, the convenience comes at a cost, said Laura Hendrix, professor and personal finance and consumer expert for the Cooperative Extension Service.
The first cost is interest, which is expressed as annual percentage rate, or APR.
“Look for the loan with the lowest APR. A lower APR can save you thousands of dollars over the life of a loan,” Hendrix said.
Lenders also charge fees on loans, so it’s important to shop around for a loan with the lowest fees.
What kind of terms a borrower receives depends on how a consumer manages credit, which is summed up in a credit score.
“Lenders rely on scores from the three main credit reporting agencies or they may have their own, but the scores from each tend to be close,” Hendrix said. “Most scoring systems range from 300 to 850. Higher scores will qualify consumers for lower interest rates.”
Most consumers have scores in the 600s or 700s.
“Consumer with credit scores 700 and above will qualify for better terms on a loan,” she said. “Check your score at www.annualcreditreport.com.”
Managing debt
Another factor in lender decision-making is a consumer’s debt-to-income ratio.
“The debt-to-income ratio is the total amount of monthly debt payments divided by monthly income,” Hendrix said. “If you are already over-extended on credit, you might find it more difficult to qualify for a loan.”
Before you obtain a loan, have plans to speed the payoff.
“You’ll save more money in the long run by paying off the loan as soon as possible,” she said. “Be sure to check your loan agreement to make sure that there is not a penalty for paying off the loan early.”
Fees also play into the payoff.
“Aim for a payment amount that you know you can afford to make every month,” Hendrix said. “Late payments or missing payments can lead to more fees and can potentially damage your credit score.”
If “neither a borrower nor lender be” is more your credo, Hendrix has suggestions:
- Save money to pay part of all the price in cash. Examine your budget to find ways to save.
- Look for less expensive alternatives for the item you are purchasing.
- Postpone the purchase until you are more financially stable.
The Cooperative Extension Service is the outreach arm of the University of Arkansas System Division of Agriculture.
To learn about extension programs in Arkansas, contact your local Cooperative Extension Service agent or visit www.uaex.uada.edu. Follow us on X and Instagram at @AR_Extension. To learn more about Division of Agriculture research, visit the Arkansas Agricultural Experiment Station website: https://aaes.uada.edu/. Follow on X at @ArkAgResearch. To learn more about the Division of Agriculture, visit https://uada.edu/. Follow us on X at @AgInArk.
About the Division of Agriculture
The University of Arkansas System Division of Agriculture’s mission is to strengthen agriculture, communities, and families by connecting trusted research to the adoption of best practices. Through the Agricultural Experiment Station and the Cooperative Extension Service, the Division of Agriculture conducts research and extension work within the nation’s historic land grant education system.
The Division of Agriculture is one of 20 entities within the University of Arkansas System. It has offices in all 75 counties in Arkansas and faculty on three campuses.
Pursuant to 7 CFR § 15.3, the University of Arkansas System Division of Agriculture offers all its Extension and Research programs and services (including employment) without regard to race, color, sex, national origin, religion, age, disability, marital or veteran status, genetic information, sexual preference, pregnancy or any other legally protected status, and is an equal opportunity institution.
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Media contact: Mary Hightower
mhigthower@uada.edu