Loan Comparison Calculator

What this calculator is, and when to reach for it

Two loan offers rarely differ on one thing. One has a better rate but a longer term; another has a shorter term but a fee; a third has the lowest payment and the highest total cost. Comparing them by eye is genuinely hard, and lenders present whichever figure flatters their offer most.

This calculator puts two scenarios side by side on the measures that matter — the monthly payment, the total interest, the total repaid, and how long each takes to clear — and reports the difference between them without naming a winner.

The refusal to pick is deliberate. The right answer depends on whether your constraint is monthly cash flow or lifetime cost, and those two goals frequently point at different loans. A borrower with tight monthly room and a borrower with spare capacity should choose differently from the same pair of offers.

Reach for it whenever you have two offers in hand, when a lender presents alternative terms for the same borrowing, or when you want to see what a difference in rate is actually worth against a difference in term.

Why comparing on payment alone fails

A monthly payment can be lowered two ways: by improving the rate, which genuinely reduces cost, or by lengthening the term, which spreads the same cost over more time and adds interest along the way. The payment figure cannot tell you which is happening.

This is not a trick so much as a structural ambiguity, but it is routinely exploited. An offer with a worse rate and a longer term will often show the more attractive monthly figure, and a borrower comparing payments alone would take it.

The reliable defence is to look at total interest alongside the payment every time. If one loan wins on both, the choice is easy. If they disagree, the disagreement is the finding, and you are being offered lower monthly cost in exchange for more money overall.

Where to go next

Where the offers carry different fees, convert them first with the APR calculator, which folds fees into a single comparable rate. A loan with a better rate and a large origination charge is not necessarily the cheaper one.

To model a single loan in more depth, including what overpaying would do, use the loan repayment calculator. For products with their own structure, see the personal loan calculator, the auto loan calculator, and the student loan calculator.

For mortgages, the mortgage comparison calculator does the same job with the addition of cost over a chosen horizon, which matters because mortgages are rarely held to term. If the comparison is between keeping a loan and replacing it, the debt consolidation calculator is the closer fit.

How the two loans are compared

Each loan is amortized independently under the same assumptions, then the results are set against each other. Nothing is blended.

M = P × [ r(1 + r)ⁿ ] ÷ [ (1 + r)ⁿ − 1 ]   |   total interest = (M × n) − P

P

the amount borrowed under that scenario

r

the monthly rate for that scenario

n

the number of payments for that scenario

M

the resulting monthly payment, computed separately for each loan

Comparing on the same currency assumptions

Both scenarios are treated identically: the same currency, the same convention for converting an annual rate to a monthly one, and the same amortization method. That sounds obvious, and it is exactly what breaks when people compare quotes from different sources by hand.

It matters because small differences in convention produce differences of a few units a month, which is enough to reverse a close comparison. Running both through the same calculation removes that source of error entirely.

Why total repaid is the plainest measure

Total repaid is simply the payment multiplied by the number of payments. It answers the least ambiguous question available: how much money leaves your account over the life of this loan?

Total interest is that figure less the amount borrowed, and it is the better measure when the two loans are for different amounts. When the amounts match, the two measures rank the loans identically, and either can be used.

What differences in term do to the comparison

When the terms differ, the loans are not really the same product. One ties up a payment for longer and delivers freedom sooner or later than the other, and the borrower carries debt for a different span of their life.

The calculator reports both the payment and the payoff period so this is visible rather than hidden. Where you can, ask each lender to quote the same term — it turns a genuinely difficult comparison into a trivial one, since only the rate and fees then differ.

What sits outside the comparison

Fees are not included, so an offer with an origination charge will look better here than it is. Convert to APR first where fees differ. Prepayment penalties, late charges, and any insurance sold alongside the loan are also excluded.

So is flexibility, which occasionally decides the matter. A loan that permits overpayment without charge is worth more than one that does not, and no comparison of payments will reveal that.

What this page assumes

The calculator works out a level monthly payment for each loan on its own, then shows the difference between them by subtracting Scenario B from Scenario A.

Each loan gets its own monthly payment, total paid, total interest, and months to payoff. Both must use the same currency. Fees, collateral rules, and lender decisions are left out.

Worked examples, step by step

Compare two offers on 25,000 of borrowing. Loan A is 7.5% over 60 months. Loan B is 6.9% over 72 months — a better rate and a longer term.

The two offers side by side

This is the classic disagreement. Loan B has the better rate and the lower payment, and it costs 544.93 more in total. The extra year of borrowing more than consumes the benefit of the 0.6 percentage point rate improvement.

A borrower short of monthly room might reasonably take B, valuing 75.92 a month for six years over 544.93 of lifetime cost. A borrower with capacity should take A, which is cheaper and finishes a year sooner. Both are defensible; what is not defensible is choosing B because it appeared to be the better rate.

What the same rate over the same term would show

Ask both lenders to quote 60 months and the comparison collapses to a single dimension. At 6.9% over 60 months the payment would be 493.51 with 4,610.60 of interest, comfortably beating Loan A on both measures.

That is the offer the borrower actually wants, and it exists — it was simply not the one presented. Requesting matched terms is the most effective thing you can do before comparing anything, because it removes the ambiguity that makes these decisions hard.

The vocabulary, on and around this page

Scenario

One complete set of loan assumptions: amount, rate, and term. Each is amortized independently before being compared.

Like-for-like comparison

Comparing offers on matched terms and amounts, so only rate and fees differ. It turns a hard decision into a simple one.

Monthly payment

The scheduled amount due each period. It can be lowered by a better rate or a longer term, and cannot tell you which.

Total interest

The sum of all interest across a loan. The measure that reveals whether a lower payment is genuinely cheaper.

Total repaid

Payment multiplied by the number of payments. The plainest answer to how much money leaves your account.

Payoff period

How long each loan takes to clear. A difference here means the two loans occupy different spans of your life.

Term

The number of payments a loan runs for. Extending it always lowers the payment and always raises total interest.

Note rate

The rate the payment is calculated from, as distinct from the APR which folds in certain fees.

APR

Rate plus certain fees expressed annually. The right basis for comparison when two offers carry different charges.

Origination fee

A charge for arranging a loan. Excluded from this comparison, which is why fee-bearing offers look better here than they are.

Amortization

The schedule by which each payment covers interest first and reduces the balance with the remainder.

Cash flow constraint

A limit on what you can pay monthly rather than in total. It is a legitimate reason to prefer a more expensive loan.

Lifetime cost

What the borrowing costs across its whole life. The right priority when monthly capacity is not the binding constraint.

Rate spread

The gap between two offers’ rates. A small spread is easily outweighed by a difference in term.

Prepayment flexibility

Whether a loan allows overpayment without penalty. It has real value and appears in no payment comparison.

Fixed rate

A rate held for the term, which is what makes a full comparison projectable from the outset.

Variable rate

A rate that can move. Comparing it against a fixed offer beyond its initial period is illustrative rather than exact.

Principal

The amount borrowed. When two scenarios borrow different sums, total interest is the fairer comparison than total repaid.

Periodic rate

The annual rate divided by payments per year. Applying the same convention to both loans removes a common source of error.

Trade-off

What you accept in one measure to gain in another, such as paying more overall to lower a monthly commitment.

Common mistakes, and what this page will not do

• Choosing on the monthly payment. In the worked example the loan with the lower payment and the better rate still cost 544.93 more, because its term was a year longer.
• Assuming the better rate wins. A 0.6 percentage point improvement was entirely consumed by twelve extra months of borrowing. Rate alone settles nothing.
• Comparing offers with different fees here. Fees are excluded, so a fee-bearing offer looks better than it is. Convert both to APR before comparing.
• Not asking for matched terms. Requesting the same term from both lenders reduces the decision to one dimension and often reveals a better offer than either presented.
• Ignoring how long you carry the debt. A year of extra borrowing is a year of your life committed, which is a real cost even when the interest difference is small.
• Comparing a fixed rate against a variable one as if both were certain. Beyond the initial period the variable projection is an illustration, and the comparison stops being like-for-like.
• Overlooking prepayment flexibility. A loan that allows free overpayment is worth more than one that does not, and no payment comparison will show it.
• Comparing loans for different amounts on total repaid. When the sums differ, total repaid is misleading. Total interest is the fairer measure.
• Treating a close result as decisive. Differences of a few hundred across years are within the noise of fees and flexibility that this page excludes.

What this calculator leaves out: This calculator does not include origination or arrangement fees, prepayment penalties, insurance sold alongside a loan, variable rate movements, or tax treatment. It amortizes both scenarios under identical fixed-rate assumptions and reports each measure separately without recommending an option.

Frequently asked questions