What you need
The written offers, with the rate, term and all fees each one charges, and an honest guess at how long you will keep the loan. The calculators assume fixed rates and equal monthly payments.
Reading the result
Three offers for a $25,000 loan:
- Loan 1: 7.49 % over 5 years, no fees
- Loan 2: 6.49 % over 5 years, a $1,000 origination fee
- Loan 3: 6.99 % over 6 years, no fees
The comparison calculator returns:
| Loan 1 | Loan 2 | Loan 3 | |
|---|---|---|---|
| Monthly payment | $500.83 | $489.04 | $426.11 |
| Total interest | $5,049.80 | $4,342.20 | $5,679.57 |
| Upfront fees | $0.00 | $1,000.00 | $0.00 |
| Cost of borrowing | $5,049.80 | $5,342.20 | $5,679.57 |
| Total paid incl. fees | $30,049.80 | $30,342.20 | $30,679.57 |
| APR incl. fees | 7.49 % | 8.209 % | 6.99 % |
Cheapest overall: Loan 1. It costs $292.40 less than the next-best option over its full term. Each offer wins on a different line, which is exactly why the comparison matters:
- Loan 2 has the lowest rate, but the fee lifts its APR to 8.209 %, the highest of the three.
- Loan 3 has the lowest APR and the lowest payment, but it runs a year longer, so it costs the most in total.
- Loan 1 has neither the lowest rate nor the lowest payment, yet the lowest cost of borrowing.
Now suppose you expect to repay early, after 2 years. Interest paid by then, plus fees, is about $3,123 for Loan 1, $3,695 for Loan 2 and $3,024 for Loan 3. The winner changes: with no fee and the lowest rate of the fee-free offers, Loan 3 becomes the cheapest, and Loan 2's fee hurts even more because it is spread over fewer months. This assumes no penalty for early repayment, so ask about one.
Common pitfalls
- Comparing different amounts. If one lender deducts its fee from the money you receive, you get less cash for the same debt. Enter the same amount and list the fee under Fees.
- Ignoring financed fees. A fee added to the balance also earns interest. In the APR calculator, enter it as a Loaned Fee rather than an Upfront Fee.
- Comparing a fixed rate with a variable one. These calculators assume the rate never changes. A variable rate that starts lower can end up higher.
- Overlooking add-ons. Payment insurance, account fees and early repayment charges are often in the small print and change the real cost.
- Choosing on the payment alone. Stretching the term is the easiest way to lower a payment and the most expensive one.
Going further
How amortization splits each payment between interest and principal, and why early payments are mostly interest, is explained in How Loan Amortization Works. The differences between personal loans, auto loans and mortgages are covered in How Different Loans Work.