Loan Comparison Calculator
Side-by-side compare two loan offers with different rates and terms to find out which costs less in total interest. Perfect for choosing between bank offers or deciding whether a lower rate justifies higher fees.
About this calculator
Two loans with the same principal but different interest rates or terms can have dramatically different total costs. For each loan, the total cost equals the monthly payment multiplied by the number of months: Total Cost = M × n, where M = L × (r × (1+r)^n) / ((1+r)^n − 1), r is the monthly rate (annual rate ÷ 100 ÷ 12), and n is the term in months. The calculator computes this for both loans and returns the difference: Savings = Total Cost₁ − Total Cost₂. A lower rate doesn't always win — a shorter term with a higher rate can cost less overall if the rate difference is modest. Comparing total cost rather than monthly payment gives a true apples-to-apples picture.
How to use
Compare a $20,000 loan: Loan 1 at 6% for 48 months vs Loan 2 at 5% for 60 months. Loan 1: r₁ = 0.005, M₁ = 20,000 × (0.005 × 1.005^48)/(1.005^48 − 1) ≈ $469.70; Total₁ = $469.70 × 48 = $22,545.60. Loan 2: r₂ = 0.004167, M₂ = 20,000 × (0.004167 × 1.004167^60)/(1.004167^60 − 1) ≈ $377.42; Total₂ = $377.42 × 60 = $22,645.20. Savings = $22,645.20 − $22,545.60 = $99.60. Despite the lower rate, Loan 2 costs slightly more overall — Loan 1 is the better deal by about $100.
Frequently asked questions
How do I compare loans with different terms and interest rates fairly?
The only fair comparison is total cost of credit — the sum of all payments over the life of each loan. Monthly payment comparisons are misleading because a longer term always produces a lower payment but usually higher total interest. Calculate M × n for each option and subtract. Also factor in any origination fees, prepayment penalties, or closing costs, which are not captured in the rate alone. The APR (Annual Percentage Rate) standardizes fees into a single rate, making it more useful than the nominal interest rate when fees differ.
When does a slightly higher interest rate make sense if the loan term is shorter?
A higher rate over a shorter term can cost less in total interest because interest accrues for fewer months. For example, a 7% loan over 36 months will often beat a 5.5% loan over 60 months in total dollars paid. The shorter term also builds equity faster (in asset-backed loans) and frees up cash flow sooner. The key metric is total cost, not rate. Use the comparison calculator to find the crossover point — input both scenarios and let the numbers decide rather than assuming lower rate always wins.
What hidden costs should I consider beyond the interest rate when comparing loan offers?
Origination fees (typically 0.5–1% of the loan amount), application fees, prepayment penalties, and mandatory insurance products all add to the true cost of a loan. A lender offering 4.9% with a $500 origination fee may cost more than one offering 5.1% with no fees, depending on the term. The APR legally incorporates most fees into the rate, so comparing APRs rather than nominal rates is more reliable. Always ask for a Loan Estimate or Truth-in-Lending disclosure that itemizes all costs before committing.