Compare fixed-rate loans with monthly payments using their nominal annual interest rates. Results show monthly payments, total interest and total payments over each full term. Fees, insurance, taxes and early repayment are excluded; this is not a fee-inclusive APR comparison.
Loan Comparison Formula
To compare two loans, calculate the monthly payment, total interest, and total cost for each loan using the standard amortized loan payment formula, then compare the totals.
M = P \times \dfrac{r(1+r)^n}{(1+r)^n - 1}
Where:
M is the monthly payment.
P is the loan principal, which is the amount you borrow.
r is the monthly interest rate, equal to the nominal annual percentage divided by 100 and then 12. At 0% interest, M = P ÷ n. Payments are made at the end of each month.
n is the total number of monthly payments, equal to the loan term in years multiplied by 12.
After you find the monthly payment for a loan, calculate its total cost and total interest with the formulas below.
Total\ Cost = M \times n
Total\ Interest = (M \times n) - P
For equal principal amounts, lower total payments mean less interest in this fixed-rate model, even with a higher monthly payment. If amounts differ, compare the financing received as well as interest and lender fees.
Sample Monthly Payments by Interest Rate
The values below show the monthly payment, total interest, and total cost for a $20,000 loan repaid over 5 years (60 months) at several interest rates. Use them as a quick reference for how rate changes affect the cost of a loan.
| Annual Rate | Monthly Payment | Total Interest | Total Cost |
|---|---|---|---|
| 4% | $368.33 | $2,099.83 | $22,099.83 |
| 5% | $377.42 | $2,645.48 | $22,645.48 |
| 6% | $386.66 | $3,199.36 | $23,199.36 |
| 7% | $396.02 | $3,761.44 | $23,761.44 |
| 8% | $405.53 | $4,331.67 | $24,331.67 |
Loan Comparison Example
You are deciding between two offers for a $25,000 loan. Loan A has a 6.5% annual rate over 5 years. Loan B has a lower 5.5% annual rate but a longer 6-year term.
Loan A: the monthly payment is $489.15, the total interest is $4,349.22, and the total cost is $29,349.22.
Loan B: the monthly payment is $408.45, the total interest is $4,408.20, and the total cost is $29,408.20.
Loan B has the smaller monthly payment, but because of its longer term it costs $58.97 more in total. In this case Loan A is the cheaper loan over its full life, which shows why the monthly payment alone does not tell you which loan is better.
FAQ
What is a loan comparison calculator?
It is a tool that calculates the monthly payment, total interest, and total cost for two loans at once so you can see which loan is cheaper. You enter the amount, annual interest rate, and term for each loan, and the calculator does the rest.
Should I just choose the loan with the lowest monthly payment?
Not always. A lower monthly payment often comes from a longer term, which means you pay interest for more months and usually pay more in total. Compare the total cost, not only the monthly payment, before you decide.
Does a lower interest rate always mean a cheaper loan?
For the same principal and term, a lower nominal rate reduces interest. A longer term can offset that saving. Compare the amount financed, interest, fees and total payments as well as monthly affordability.
