Understanding your loan comparison
The table below explains why comparing by total cost, rather than by rate or monthly payment alone, gives the more complete picture of which loan offer actually costs less.
| Comparison method | What it can miss |
|---|---|
| Interest rate alone | Ignores term length and fees — a lower rate with a longer term or higher fees can cost more in total than a higher rate with a shorter term and no fees |
| Monthly payment alone | A lower payment often comes from a longer term, which increases total interest paid over the life of the loan |
| Total cost (this calculator) | Combines rate, term and fees into a single dollar figure for the full life of each loan, which is the most complete single-number comparison |
- This calculator compares the two offers as entered; it does not adjust for differences in loan type, collateral requirements, prepayment penalties, or other non-numeric terms that can also matter when choosing between offers.
- The APR disclosed on an actual Loan Estimate or Truth in Lending disclosure is a standardized figure designed for comparison and may combine rate and certain fees differently than this calculator's total-cost approach; comparing both the APR and this calculator's total-cost figure can be informative.
- Fees entered here are treated as a one-time upfront cost added to total cost; some loans instead roll fees into the amount financed, which would change the effective principal and payment rather than simply adding to total cost.
What is a loan comparison calculator?
A loan comparison calculator computes the full cost of two loan offers for the same amount borrowed, so they can be compared on equal terms even when they differ in rate, term and upfront fees. The Consumer Financial Protection Bureau (CFPB) recommends comparing loan offers using the annual percentage rate (APR), which is designed to combine the interest rate and certain fees into one figure, alongside the total dollar cost over the life of each loan.
Two loans with the same interest rate can have very different total costs if their terms or fees differ, and two loans with different rates can end up costing about the same once fees and term length are factored in. This calculator computes total cost directly — total interest paid plus fees — for each offer rather than relying on rate alone, which shows the full trade-off.
Because a longer term generally lowers the monthly payment but increases total interest paid, and a shorter term does the reverse, the 'cheaper' offer by total cost is not always the offer with the lower monthly payment; this calculator reports both figures separately so either comparison can be made.
How to use this loan comparison calculator
- Enter the loan amount, which is treated as the same amount borrowed under both offers being compared.
- Enter Loan A's interest rate, term in years, and any upfront fees.
- Enter Loan B's interest rate, term in years, and any upfront fees.
- Read which offer is cheaper by total cost, each offer's monthly payment, each offer's total cost (interest plus fees), and the dollar savings from choosing the cheaper offer.
The formula behind the loan comparison
Each offer's monthly payment is calculated with the standard amortization formula, using that offer's own rate and term applied to the same loan amount. Each offer's total cost is the total of all payments made over its term, minus the original loan amount (giving total interest), plus that offer's fees.
For example, on a $25,000 loan, Loan A at 7% over 5 years with no fees produces a monthly payment of $495.03 and total cost of $4,701.80, while Loan B at 6.4% over 6 years with a $500 fee produces a monthly payment of $419.06 and total cost of $5,672.24 — Loan A is cheaper overall by $970.44 despite its higher rate, because its shorter term and lack of fees outweigh the rate difference.
Common mistakes
- Choosing the loan with the lower monthly payment without checking total cost — a longer term usually lowers the payment but increases total interest paid over the life of the loan.
- Comparing two loans' interest rates without accounting for fees, which can make a lower-rate loan more expensive overall than a higher-rate loan with fewer or smaller fees.
- Assuming the loan amount, term, or fee structure entered exactly matches what a lender will actually offer — always confirm the comparison against each lender's official Loan Estimate or equivalent disclosure before deciding.
- Overlooking prepayment penalties, which are not modeled by this calculator's total-cost figure but can materially affect the true cost if the loan is paid off early.
- Not comparing offers with the same loan amount — differences in the amount actually borrowed (for example, if fees are financed into the loan on one offer but not the other) can distort a side-by-side comparison.
Häufig gestellte Fragen
Should I compare loans by interest rate or total cost?
Total cost gives the more complete picture, since it combines the interest rate, term length and fees into a single dollar figure for the life of the loan. Two loans with the same rate can have very different total costs if their terms or fees differ, which is why this calculator computes total cost for each offer rather than relying on rate alone.
Why might a loan with a higher interest rate be cheaper overall?
A higher-rate loan can still be cheaper in total cost if it has a shorter term (so interest accrues for less time) or lower fees than a lower-rate alternative. On the calculator's example, a 7% loan over 5 years with no fees costs less in total than a 6.4% loan over 6 years with a $500 fee, because the shorter term and absence of fees outweigh the rate difference.
What is APR and how does it relate to this comparison?
APR (annual percentage rate) is a standardized rate the Consumer Financial Protection Bureau recommends for comparing loan offers, since it is designed to reflect the interest rate plus certain fees in a single percentage. This calculator instead computes total dollar cost directly for each offer, which is a complementary way to compare the same trade-off.
Does a lower monthly payment always mean a better loan deal?
Not necessarily. A lower monthly payment often results from a longer loan term, which spreads the same principal over more payments and typically increases the total interest paid over the life of the loan, even if the rate is the same or lower. Comparing total cost alongside the monthly payment shows this trade-off.
Does this calculator include the fees rolled into a loan's balance?
No. This calculator treats each offer's fees as a one-time upfront cost added to that offer's total cost figure, using the same loan amount for both offers. If a lender instead finances fees into the loan balance, the effective amount borrowed and payment would differ from this calculator's assumption, so that structure should be checked against the actual Loan Estimate.
Quellenangaben
- Consumer Financial Protection Bureau (CFPB). What is the difference between a loan's interest rate and its APR? consumerfinance.gov.
- Consumer Financial Protection Bureau (CFPB). Compare loan offers using the Loan Estimate. consumerfinance.gov.
- Federal Reserve Board. Regulation Z (Truth in Lending Act) — APR disclosure requirements. federalreserve.gov.
- Brealey RA, Myers SC, Allen F. Principles of Corporate Finance (13th ed.). McGraw-Hill, 2020. Chapter 2: How to Calculate Present Values.