What does the comparison actually calculate?
Each option is run through the same amortization formula using its own rate and term but the shared loan amount. That gives two fixed monthly payments. Multiplying each payment by its number of months and subtracting the amount borrowed gives each option's total interest.
The calculator then flags whichever payment is lower and reports the difference in total interest as the savings from the lower-interest option. Those two flags can point at different offers, which is the whole point: you see whether the cheaper loan also fits your monthly budget.
Because both options borrow the same amount, the comparison isolates the effect of rate and term. Anything else that differs between offers, such as an origination fee, discount points or a prepayment penalty, has to be weighed separately.
Payment(X) = P × rX × (1 + rX)^nX ÷ ((1 + rX)^nX − 1) Interest(X) = Payment(X) × nX − P Interest saved = |Interest(A) − Interest(B)|
- P
- shared loan amount
- rX
- monthly rate for option X (annual rate ÷ 12)
- nX
- number of monthly payments for option X
Example: $32,000 at 7.4% for 5 years vs. 8.1% for 7 years
Scenario: Imagine a credit union offers $32,000 at 7.4% over 5 years, while another lender offers 8.1% over 7 years. Both are fixed-rate with monthly payments; the figures are illustrative.
- Option A payment$32,000 at 7.4% ÷ 12 over 60 months = $639.69
- Option B payment$32,000 at 8.1% ÷ 12 over 84 months = $500.35
- Option A total interest$639.69 × 60 − $32,000 = $6,381.40
- Option B total interest$500.35 × 84 − $32,000 = $10,029.40
- Lower paymentOption B, by $139.34 a month
- Interest saved with Option A$10,029.40 − $6,381.40 = $3,648.00
Option B is $139.34 a month easier to carry, but Option A costs $3,648.00 less in interest over its life.
If either offer charges an origination fee, add it to that option's cost before deciding.
When does a side-by-side comparison help most?
Two lenders, two quotes
Prequalified offers often differ in both rate and term. Entering both shows which one actually costs less and by how much.
One lender, several terms
Many lenders quote a slightly lower rate on a shorter term. Comparing them shows the combined effect of the better rate and fewer months.
Deciding whether to refinance
Enter your current remaining balance as the amount, your existing rate and remaining term as Option A, and the new offer as Option B. Remember to weigh the new loan's fees.
Testing your budget limit
If the cheaper option's payment is a stretch, the comparison tells you exactly what you pay in extra interest for the breathing room.
What trips people up when comparing loans?
Picking the lower payment by reflex
The lower payment often belongs to the longer, costlier loan. Read the total interest line before choosing.
Comparing different loan amounts
If one offer rolls fees into the balance, its real amount is higher. Use the same amount for both, then add fees separately.
Ignoring upfront costs
An offer with a lower rate but a large fee may only win if you keep the loan long enough. Work out the break-even month.
Comparing rates instead of APRs
Two offers at the same rate can carry different fees. The APR disclosure is the like-for-like check.
Assuming you will keep the loan to the end
If you expect to repay early or refinance, the full-term interest overstates what you will really pay on either option.
Is it the rate or the term that drives the difference?
Usually the term. Holding everything else equal, Option D in the table below borrows the same $32,000 at Option A's 7.4% but over 7 years, and its interest jumps to $9,097.00. Option C keeps 5 years but at 7.9%, and the interest rises far less. Two extra years of balance cost more than half a point of rate.
That is why a shorter-term offer with a slightly higher rate can still beat a longer, cheaper-rate one on total cost. When an offer improves the rate but stretches the term, run both pieces separately to see which effect dominates.
| Option | Monthly payment | Total interest | Total paid |
|---|---|---|---|
| A: 7.4%, 5 years | $639.69 | $6,381.40 | $38,381.40 |
| B: 8.1%, 7 years | $500.35 | $10,029.40 | $42,029.40 |
| C: 7.9%, 5 years | $647.31 | $6,838.60 | $38,838.60 |
| D: 7.4%, 7 years | $489.25 | $9,097.00 | $41,097.00 |
How do fees change which offer wins?
Spread an upfront fee against the monthly saving to find the break-even point. Suppose a 5-year, $32,000 loan is quoted at 7.9% with no fee or 7.4% with a $320 fee. The payments are $647.31 and $639.69, a saving of $7.62 a month. Dividing $320 by $7.62 gives about 42 months to recover the fee.
If you are confident you will keep the loan past that point, the lower rate wins. If there is a real chance you will repay or refinance sooner, the no-fee offer may come out ahead even with its higher rate.
Terms used on this page
- APR (Annual Percentage Rate)
- APR is the yearly cost of borrowing expressed as a single percentage that includes the interest rate plus certain required fees, such as origination charges. Because lenders must calculate it the same way under federal Truth in Lending rules, APR lets you compare loan offers on an even footing.
- Loan Term
- The loan term is the length of time you have to repay a loan, usually stated in months for consumer loans. A longer term lowers the monthly payment but increases the total interest you pay, because the balance stays outstanding longer. A shorter term costs more each month and less overall.
- Interest Rate
- An interest rate is the price of money, stated as a percentage of the balance per year. Borrowers pay it to lenders, and savers earn it from banks. The rate alone does not include fees or compounding, so it can understate the true yearly cost of a loan or overstate a simple comparison of savings accounts.
- Refinancing
- Refinancing replaces an existing loan with a new one, usually to get a lower interest rate, a different term or a lower payment. The new lender pays off the old loan, and you repay the new one. It saves money when the rate drop outweighs any fees, but stretching the term can raise total interest.
- Prepayment Penalty
- A prepayment penalty is a fee some lenders charge if you pay off a loan early or pay down a large part of it ahead of schedule. It compensates the lender for interest it will no longer receive. Many consumer loans have no such penalty, but if yours does, the terms must appear in your loan disclosures.
Loan Comparison Calculator: common questions
Is a lower interest rate always the better loan?
Not always. A lower rate on a longer term can still cost more in total interest than a slightly higher rate on a shorter term, and a lower rate bought with fees or points may not pay off if you repay early. Compare total interest and fees together, and check how long you expect to keep the loan.
How do I compare loans with different terms fairly?
Use the same loan amount and compare total interest over each full term, then look at the payments. The total-interest figure captures both rate and length in one number. If you plan to pay either loan off early, compare the interest you would pay over your realistic holding period instead.
Why does the shorter loan have the higher payment but cost less?
Because it repays principal faster. Each payment retires a larger slice of the balance, so interest is charged on a smaller amount sooner, and there are fewer months of interest overall. The higher payment is the price of that speed, and the lower total interest is the reward. Whether that trade suits you depends on how much monthly room your budget has.
Should I compare APR or interest rate between offers?
Compare APR when the offers carry different fees, because the APR folds certain charges into one yearly rate that federal rules require lenders to disclose. Use the interest rate in this calculator to get each payment. If two offers have the same rate but different APRs, the one with the higher APR has higher fees.
What is the break-even point on a loan with points?
It is the number of months it takes for the lower payment to repay the upfront cost: fee divided by monthly saving. In the illustrative case above, a $320 fee that saves $7.62 a month breaks even after about 42 payments. Keep the loan longer than that and the fee pays for itself.
Can I compare a fixed-rate loan with a variable-rate loan here?
Only roughly. The calculator treats both rates as fixed for the whole term. For a variable-rate offer, run it once at the starting rate and again at a higher rate it could reach, to see a range. The fixed offer's numbers are reliable; the variable one's are a best case.
Does it make sense to take the longer loan and pay it off early?
It can, if the longer loan has no prepayment penalty and the same rate. You get a lower required payment for flexibility and can pay extra when cash allows. The risk is that the extra payments never happen, leaving you with the higher-interest schedule. If the longer term carries a higher rate, it usually costs more even with extra payments.
How much can one extra year on a loan cost?
It depends on the amount and rate, but it is rarely trivial. At 7.4% on $32,000, going from 5 to 7 years raises total interest from $6,381.40 to $9,097.00. Each added year keeps a meaningful balance outstanding, so the interest grows faster than the payment falls. Run your own amount and rate through both terms to see the exact figure.
What should I check besides payment and interest?
Look at origination fees, closing costs, prepayment penalties, whether the rate is fixed or variable, late-fee policies and any required add-on products. These sit outside this calculator's math but can tip the decision, especially when two offers are close on total interest. Ask each lender for its full disclosure so you can compare these items line by line.
Sources
- Regulation Z (Truth in Lending), 12 CFR Part 1026 — Consumer Financial Protection Bureau. Accessed October 17, 2026.
- Selected Interest Rates – H.15 release — Federal Reserve Board. Accessed October 17, 2026.
- Auto loans — Consumer Financial Protection Bureau. Accessed October 17, 2026.
We cite primary sources: regulators, central-bank data and federal agencies. Worked examples on this page are our own calculations, last checked October 17, 2026. See our methodology.