How to use the Loan Comparison Calculator
- Enter the amount, yearly rate, term in years and upfront fees for Loan A.
- Enter the same four details for Loan B.
- Read which loan costs less in total, and compare the monthly payments and total interest.
Formula used
Payment = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1), with r the monthly rate and n the number of months. Total cost = payment × n + fees. Total interest = payment × n − amount.
Worked example
Here is the Loan Comparison Calculator worked through with the example values shown above, so you can check each step by hand.
| Inputs | |
|---|---|
| Loan A: amount | $300,000 |
| Loan A: interest rate (per year) | 6.5 % |
| Loan A: term | 30 years |
| Loan A: upfront fees | $0 |
| Loan B: amount | $300,000 |
| Loan B: interest rate (per year) | 5.75 % |
| Loan B: term | 15 years |
| Loan B: upfront fees | $3,000 |
| Result | |
| Cheaper over the full term | Loan B costs 231,212 less in total |
| Loan A: monthly payment | $1,896.20 |
| Loan B: monthly payment | $2,491.23 |
| Loan A: total interest | $382,633 |
| Loan B: total interest | $148,421 |
| Loan A: total cost including fees | $682,633 |
| Loan B: total cost including fees | $451,421 |
What the default example shows
Loan A is a $300,000 loan at 6.5% over 30 years. Loan B is the same amount at 5.75% over 15 years with $3,000 of fees. Loan A has a payment of $1,896.20 a month, against $2,491.23 for Loan B.
Loan B’s payment is higher, but its total interest is $148,421 against $382,633 for Loan A. Including fees, Loan B costs $451,421 against $682,633, so it is cheaper by $231,212.
How each figure is calculated
Each loan uses the standard repayment formula with equal monthly payments. The monthly rate is the yearly rate divided by 12, and the number of payments is the term in years times 12. Total interest is all the payments added up, less the amount borrowed. Total cost is all the payments plus the upfront fees.
The calculator treats fees as a cost paid on top of the loan, so they are not added to the amount borrowed. If you roll fees into the loan, enter the larger amount and zero fees.
Rate versus term versus fees
Three things drive the difference. A lower rate reduces interest in proportion. A shorter term reduces interest a lot, because the balance is paid down sooner. Fees add cost on day one. In the example, removing Loan B’s fees would reduce its total cost to $448,421.
Try changing one input at a time to see its effect, for example the same rate on both loans with different terms.
What the comparison leaves out
The totals are plain sums of money and do not discount for the time value of money, so a longer loan looks slightly worse than it may be if you can invest the savings. They do not include insurance, taxes, prepayment penalties or variable-rate changes either.
For a single loan you can look at the full schedule in the loan EMI calculator. This tool is for the early decision between two offers, so confirm the final figures with the lender before you commit.
Frequently asked questions
Should I pick the lower payment or lower total cost?
It depends on your budget. The cheaper loan overall is usually the one with the shorter term, if you can afford the payment.
How do I compare loans with different amounts?
Enter each amount. The totals will differ, so compare the cost per amount borrowed as well.
Where do I enter processing fees?
In the upfront fees box for that loan.
Does it work for floating rates?
Only for a single assumed rate. Rates that change will alter the real result.
Can I use it for any currency?
Yes. Pick a currency symbol; the numbers are not converted.
Does it include prepayments?
No. It assumes every payment is made on schedule.
This calculator gives estimates for information only. Actual figures from a bank, employer, tax authority or doctor may differ. It is not financial, tax, legal or medical advice.