Loan Comparison Calculator

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Reviewed by: **David Chen, CFA**
Chartered Financial Analyst and expert in debt modeling and comparative financial analysis.

The **Loan Comparison Calculator** is a critical tool for deciding between two different lending offers. This calculator will compute the monthly payment and total interest for two loans simultaneously, allowing you to instantly see which option saves you more money and simplifies the decision-making process. Enter your desired principal and term, and the two different rates, to begin.

Instructions: Enter the loan principal, and then three of the remaining four parameters (Rate A, Rate B, Term A, Term B) to solve for the missing one.

Loan Parameters (P, F, V, Q)

Principal Amount ($P$) – [P]

Loan A

Annual Interest Rate A (%) ($R_A$) – [F]

Term A (Months) ($N_A$) – [V]

Loan B

Annual Interest Rate B (%) ($R_B$) – [Q]

Term B (Months) ($N_B$)

Loan Amortization Formula

The core formula for calculating the Monthly Payment ($M$) for both Loan A and Loan B:

Monthly Payment ($M$):

$$M = P \left[ \frac{i(1+i)^n}{(1+i)^n – 1} \right]$$

Where $i = R/1200$ (monthly rate) and $n = \text{Term in Months}$.

Total Cost for Loan $x$:

$$\text{Total Cost}_x = (M_x \times N_x)$$ Formula Source: NerdWallet: Amortization

Variables Explained (P, F, V, Q – Primary Inputs)

$P$ (Principal Amount): The total amount borrowed, which is usually the same for comparison purposes.
$F$ (Rate A): The annual interest rate for the first loan option.
$V$ (Term A): The total duration (in months) of the first loan option.
$Q$ (Rate B): The annual interest rate for the second loan option.

Related Financial Decision Calculators

Use these related tools for detailed loan analysis:

What is Loan Comparison and Why is it Important?

Loan comparison is the process of evaluating two or more potential loan offers to determine which provides the best financial outcome. The decision should never be based solely on the advertised interest rate. A comprehensive comparison must factor in the entire cost structure, including the monthly payment, the total interest paid over the life of the loan, and the overall loan term.

Comparing loans is crucial because a seemingly small difference in the annual interest rate (e.g., 0.5%) on a large, long-term loan (like a mortgage) can translate into tens of thousands of dollars in difference in total interest paid. This calculator specifically focuses on the core mathematical differences between two amortizing loans, assuming equal principal is borrowed for comparison simplicity.

How to Analyze Loan Comparison Results (Example)

Compare a \$250,000 loan, 30-year term (360 months), with two rates:

Loan A (Rate: 7.0%):
Monthly Payment ($M_A$): \$1,663.20. Total Interest Paid: $\text{\$348,752}$.
Loan B (Rate: 6.5%):
Monthly Payment ($M_B$): \$1,580.68. Total Interest Paid: $\text{\$318,045}$.
Savings Conclusion:
Loan B saves $\$1,663.20 – \$1,580.68 = \text{\$82.52}$ per month, leading to a massive total interest savings of $\text{\$348,752} – \text{\$318,045} = \mathbf{\$30,707}$ over 30 years.

Frequently Asked Questions (FAQ)

If two loans have the same rate, how should I compare them?

If the rates are identical, the key comparison points become the loan term (shorter term saves interest) and the fees/closing costs (lower fees save upfront money). Also, compare any prepayment penalties or special clauses.

Does this calculator factor in closing costs?

No. For a purely mathematical comparison of interest and payments, closing costs are excluded. You should manually subtract the cost difference from the total interest savings to find the true net benefit.

Which is better: lower rate or shorter term?

A shorter term (e.g., 15 years) usually results in a significantly lower *total interest paid* than a lower rate on a long term (e.g., 30 years), even if the shorter term’s rate is slightly higher. However, the monthly payment will be much higher for the shorter term.

What is APR vs. Interest Rate?

The interest rate is the cost of borrowing money. The Annual Percentage Rate (APR) is the total cost, including the interest rate plus certain required fees (like origination fees). APR is the better metric to use when comparing two loans.

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