Loan Comparison Calculator

$25,000 at 7% for 4 years (no fees) versus $25,000 at 5.5% for 6 years with a $500 fee: Loan A costs about $593/month and $28,460 total; Loan B about $418/month and $30,110 total. Loan A is cheaper overall; Loan B has the lower payment.

A lower monthly payment is not a better loan. It is often just a longer one. The meaningful comparison has three parts, in this order.

1. Monthly payment - what you must find every month. This determines affordability and is a hard constraint.
2. Total interest paid - the real cost of borrowing over the whole term.
3. Total amount paid - principal plus interest, which is what the borrowing actually costs you.

Neither option is objectively correct. The 15-year costs less but requires $717 more every month - a commitment that must survive job changes, childcare, and emergencies. The 30-year costs more but leaves room to overpay when circumstances allow.

Note. Always test the higher payment against a stress scenario, not your current income. A payment that only works in a good month is not affordable.

• The headline interest rate excludes fees. Two loans at the same rate can cost very different amounts once arrangement and closing costs are included.
• APR converts fees into an equivalent annual rate, making loans with different structures directly comparable.
• Origination fees change the picture sharply. A fee deducted from the advance means you repay interest on money you never received.
• Comparison must use the same amount and term - comparing a 3-year loan against a 5-year one at different sizes proves nothing.

Loan B looks identical on the headline rate. It is materially more expensive once measured against the amount actually available to you.

• Extending the term lowers the payment and raises the total cost. This is arithmetic, not a good deal.
• Shortening the term does the reverse - higher payment, far less interest.
• The relationship is non-linear. Moving from 30 to 25 years cuts interest far less than moving from 20 to 15, because the final years carry the least interest.
• Fees should be weighed against term changes. Refinancing to a shorter term only helps if the interest saving comfortably exceeds the cost of switching.

Dropping from 30 to 15 years saves $212,238 in interest at a cost of $717 more each month. Dropping from 40 to 30 saves $144,554 for $194 more. The earliest years of a long term are almost entirely interest, which is why extending a term costs so much relative to the payment relief it provides.

1. Cheapest is not always best. The lowest total cost may require a payment you cannot sustain through a bad year.
2. Flexibility has value. A larger required payment removes options. You can always overpay a long loan; you cannot underpay a short one.
3. Compare like with like. Same amount, same term, same security, fees included.
4. Check early repayment terms. Some loans charge a penalty for settling early, which changes the calculation if you expect to overpay or refinance.
5. Consider the counterfactual. Money used to clear a 4% loan is money not earning a potentially higher return elsewhere - but with none of the risk.