Transparent method
The formula
Worked example
Example inputs
How to interpret the result
The loan with the lower monthly payment isn't automatically the cheaper loan, because a longer term can lower the payment while raising the total interest paid over the life of the loan by more than the monthly savings would suggest. Payment and lifetime cost can point in opposite directions.
Before you rely on it
What to check
Compare total interest paid over the full life of each loan, not just the monthly payment, before deciding which offer actually costs less.
The common error
Where people go wrong with loan comparison calculator
Choosing a loan based on the lower monthly payment alone. Stretching the term to get there can raise the total interest paid by more than enough to erase the apparent monthly savings.
Sensitivity evidence
How loan amount changes the lower lifetime cost saves
| Loan amount | Lower lifetime cost saves | Payment difference |
|---|---|---|
| $24,000 | $482 | $107 |
| $27,000 | $542 | $121 |
| $30,000worked example | $603 | $134 |
| $33,000 | $663 | $148 |
| $36,000 | $723 | $161 |
Every input, tested
Which input moves the lower lifetime cost saves most
| Input | Tested from | To | Lower lifetime cost saves at each end | Swing |
|---|---|---|---|---|
| Offer B rate | 6.2% | 8.2% | $1,268 to $71 | $1,198 (199%) |
| Offer A rate | 5.5% | 7.5% | $234 to $1,452 | $1,218 (202%) |
| Offer A term | 4.0 years | 6.0 years | $467 to $1,693 | $1,226 (203%) |
| Offer B term | 3.0 years | 5.0 years | $1,773 to $593 | $1,180 (196%) |
| Loan amount | $27,000 | $33,000 | $542 to $663 | $121 (20%) |
Two variables at once
Lower lifetime cost saves by loan amount and offer a rate
| Loan amount \ Offer A rate | 4.5% | 6.5% | 8.5% |
|---|---|---|---|
| $24,000 | $847 | $482 | $1,851 |
| $27,000 | $953 | $542 | $2,082 |
| $30,000 | $1,059 | $603 | $2,313 |
| $33,000 | $1,165 | $663 | $2,545 |
| $36,000 | $1,271 | $723 | $2,776 |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Loan amount | $30,000 |
| Offer A rate | 6.5% |
| Offer A term | 5.0 years |
| Offer B rate | 7.2% |
| Offer B term | 4.0 years |
| Lower lifetime cost saves | $603 |
| Payment difference | $134 |
Where the inputs come from
Enter the same loan amount for both offers so the comparison isolates rate and term. Take each rate and term from the written quote, not from an advertisement. If offers differ in fees, subtract the fee from the loan amount for one and compare the payment you would really need to make, or run the difference through an APR tool first. Loan amount is the amount financed, not the price of the asset.
Using the lower lifetime cost saves in a real decision
Treat the interest difference as what you are paying for the lower payment.
When the result stops applying
The comparison assumes both loans amortize with equal monthly payments and neither has a prepayment penalty, which is not always the case. Different fees, a variable rate on one offer, or a rate that depends on autopay enrollment can change the ranking. If one offer is a secured loan and the other is unsecured, the risk you take on differs even when the numbers look alike.
What to compare it with
After comparing two offers, calculate the payoff date and monthly budget effect of the cheaper one, and check whether it has features that matter, such as no prepayment penalty, payment holidays or a rate discount for autopay. A useful test is to ask what happens if you have to skip a payment or lose income. A loan with a hardship option can be worth a slightly higher rate. Save each written quote, because verbal terms disappear when the final disclosure arrives.
People also ask
Frequently asked questions
Which matters more, the rate or the term?
Both drive cost, but term often matters more to total interest. A modestly higher rate on a much shorter term can still cost less overall.
What if the two offers have different fees?
Fold each fee into the decision by comparing APRs, or reduce the loan amount by the fee that is deducted from proceeds. Otherwise the lower quoted rate may hide a more expensive loan.
Can I compare a loan with a lease or a 0% offer?
Not directly. A 0% offer often replaces a rebate, so compare it with a loan taken at market rate after applying the rebate.