Loan Comparison Calculator

Why lifetime cost matters more than monthly payment

Two offers with near-identical monthly payments can land far apart by the final payment, and term is usually why. Stretching the same principal over more months lowers what leaves the account each month and raises the total interest charged, so a slightly higher rate over a shorter term sometimes costs less by the end. This calculator applies the same measure to both offers, monthly payment multiplied by number of months, and shows which one totals less under the figures entered. Whether the cheaper total is the better fit for a particular borrower is a separate question, since cashflow headroom, income stability and the value of keeping room to overpay are not in the model.

Regulators in several markets require lenders to quote a standardised annual percentage rate so that offers can be lined up against each other. The European Commission’s consumer credit rules describe the APR as the figure expressing the total cost of the credit. That standardisation covers the rate side of the comparison. It says nothing about what a longer term does to the total, which is what this page measures.

How to use it

Enter the principal, annual rate and term in years for Loan 1, then the same three for Loan 2. Six figures come back: the monthly payment under each offer, the total repaid across each full term, the interest paid under each, and the gap between the two lifetime totals. The currency selector at the top changes formatting only. The arithmetic is currency neutral, so the same principal, rate and term produce the same proportional gap whether the figures read in dollars, euros or rupees.

Different principals change what the headline gap means. It then mixes the extra money borrowed with the extra cost of borrowing it, and the two total-interest rows underneath are what separate the two.

Worked example

Two offers on the same 20,000 principal, currency as selected. Loan 1 charges 7% over 5 years, Loan 2 charges 6% over 7 years. Loan 1 needs about 396.02 a month and, across its 60 payments, comes to 23,761.44 in total. Loan 2 asks less each month at roughly 292.17, but it runs for 84 payments and totals 24,542.37. So Loan 1 lands 780.93 cheaper over its life despite carrying the higher headline rate, because two extra years of interest outweigh the one-point rate advantage.

Change a single input and the ranking flips. Hold Loan 2 at 6% and cut its term to 5 years: the monthly payment rises to 386.66, the total falls to 23,199.36, and Loan 2 now finishes 562.08 below Loan 1.

How the math works

For each loan the monthly payment is L × r ÷ (1 − (1 + r)⁻ⁿ). L is the principal, r is the monthly rate (annual rate ÷ 12 ÷ 100), and n is the number of months, which is years × 12. Multiply that payment by n for the total repaid, subtract the principal for total interest, and the lifetime-cost difference is the absolute value of one total minus the other. Every payment is treated as identical and every rate as fixed for the whole term. No fees, no missed payments, no early settlement.

Where this calculator sits in the comparison process

Both loans are measured the same way, which is what makes the comparison like for like. What sits outside it: arrangement or origination fees, points paid up front, credit insurance sold alongside the loan, early-repayment options, and any rate reset during the term. Where two offers differ on fees, one practical workaround is to fold the fee into the principal, so a 20,000 loan carrying a 500 origination fee goes in as 20,500. That absorbs the fee into the lifetime figure, though the fee then accrues interest inside the model, which sits closer to a fee added to the balance than one paid in cash on day one. Variable-rate offers can be run at the current rate and again at the cap written into the loan documents, which brackets the range.

What counts as an ordinary rate also depends on where the borrowing happens. World Bank data on lending interest rates records how far the typical rate charged by banks differs between countries, so a rate that looks steep in one market can be unremarkable in another.

What this calculator doesn’t capture

The model is deliberately narrow. Differences in fees, points, insurance, prepayment penalties or rate-reset behaviour can move the comparison, and tax treatment of loan interest varies by country and by what the borrowing funds. Two further things never appear in a lifetime-cost figure. A longer term means more months exposed to a drop in income, and a lower monthly payment means more room in the budget while the loan runs. Both are real. The difference reported here is one input to the decision rather than the decision itself.