Loan Comparison Calculator
Created by: Liam Turner
Last updated:
Enter two loan offers side by side — rate, term, amount, and origination fee — to see the monthly payment difference, total cost difference, and the APR for each. The lower APR identifies the truly cheaper loan, even when one has a higher stated rate.
Loan Comparison Calculator
FinanceCompare two loan offers on monthly payment, total interest, total cost, and APR including fees. The lower APR is the truly cheaper loan regardless of the headline rate.
Loan A
Loan B
How to Compare Two Loan Offers
When you receive multiple loan offers, the headline interest rate alone does not tell the full story.
Origination fees, different loan amounts, and different terms can make a higher-rate loan cheaper overall.
This calculator computes APR for both offers so you can compare them on a level playing field.
APR (annual percentage rate) is the standard metric that lenders are legally required to disclose.
It translates interest rates plus fees into a single annual percentage so consumers can compare apples to apples.
A loan with a lower nominal rate but high fees can have a higher APR than a loan with a higher nominal rate and no fees.
How the Loan Comparison Calculation Works
Enter the terms for each loan.
The calculator computes monthly payment using the standard amortization formula, then solves for the APR that equates the present value of payments to the net loan proceeds (after deducting any origination fee).
This gives you the true annualized cost of each option.
Loan Comparison Formulas
Monthly payment = P × r(1+r)^n / ((1+r)^n − 1)
where P = principal, r = monthly rate, n = term in months
APR: solve for annual rate where PV of payments = loan amount − origination fee
Total cost = monthly payment × term + origination fee
Example Scenarios
Rate vs Fee Trade-Off
Loan A: $20,000 at 7.5% for 60 months, $500 fee. Loan B: $20,000 at 8.0% for 60 months, no fee. Monthly payment: A = $400, B = $406. APR: A ≈ 8.04%, B = 8.0%. Despite lower stated rate, Loan A's fee makes it very slightly more expensive — the difference is only $6/month and tiny APR spread.
Long-Term Impact of Origination Fees
Loan A: $50,000 at 5% for 120 months, $2,000 fee (4%). Loan B: $50,000 at 5.5% for 120 months, no fee. Loan A monthly: $530. Loan B monthly: $540. APR A ≈ 5.49%, APR B = 5.5%. Nearly identical — the 10-year term dilutes the fee. For a 3-year term, the same $2,000 fee on the same loan would show APR of ~6.4%.
How People Use This Calculator
- Borrowers comparing personal loan offers from multiple lenders or banks.
- Car buyers comparing dealer financing versus credit union loans.
- Small business owners deciding between two SBA loan offers with different fee structures.
- Homeowners comparing home equity loan terms from multiple institutions.
- Anyone who wants to translate loan marketing language into comparable total costs.
Tips for Comparing Loan Offers
Always read the fine print before comparing.
Some "no fee" loans embed the origination cost in a higher rate.
Some low-rate loans have prepayment penalties that raise the effective cost if you pay early.
APR from this calculator assumes you hold the loan to full term.
If the two loans have significantly different terms, consider the monthly payment difference and what you would do with it.
A shorter term at a slightly higher monthly payment saves substantial interest.
A longer term with lower payment gives you more monthly flexibility — useful if income varies.
Frequently Asked Questions
How do I compare two loan offers?
Enter the principal amount, interest rate, term, and origination fee for each loan. The calculator computes monthly payment, total interest, total cost (interest plus fees), and APR for both. APR is the best single number for comparison because it includes both the rate and upfront fees on an annualized basis.
What is APR and why does it matter for loan comparison?
APR (annual percentage rate) is the effective annual cost of borrowing that includes the interest rate plus any origination or processing fees. A loan with a 6% rate and a 2% origination fee has a higher APR than a loan with a 6.5% rate and no fees — depending on the term, the fee-heavy loan may actually cost more. APR puts both on the same footing.
When should I choose the lower monthly payment over the lower total cost?
Choose lower monthly payment when cash flow matters most — your budget is tight, you have other financial goals competing for the difference, or you might pay the loan off early anyway. Choose lower total cost when you plan to hold the loan to maturity and want to minimize the overall cost of borrowing.
How do origination fees affect the true cost of a loan?
Origination fees are a lump-sum cost paid upfront (or rolled into the loan). A 1% fee on a $50,000 loan is $500. On a 3-year term, that $500 adds roughly 0.33% to the effective APR. On a 10-year term, the annual impact is much smaller. Shorter loans amplify the fee impact; longer loans dilute it.
What if the two loans have different amounts?
When amounts differ, total cost comparison is still meaningful — Loan A might give you $10,000 and cost $12,400 in total, while Loan B offers $12,000 and costs $14,100. The APR and monthly payment differences tell you which is more efficient per dollar borrowed. Consider whether you actually need the larger amount before choosing Loan B.
Should I always choose the lower APR loan?
APR is the best universal metric, but timing matters. If you plan to pay off early, a loan with a lower rate but higher upfront fee may be worse than a higher-rate, no-fee loan — the fee hurts more when the loan does not run to maturity. Also check for prepayment penalties, which effectively raise the cost of early payoff.
Sources and References
- Consumer Financial Protection Bureau (CFPB). What Is APR? consumerfinance.gov.
- Brealey, R.A., Myers, S.C., Allen, F. Principles of Corporate Finance, 13th ed. McGraw-Hill.
- Federal Reserve Regulation Z (Truth in Lending Act) — APR Calculation Requirements.