Understanding Loan Comparison
How to Compare Loans
When comparing loans, look at multiple factors: the interest rate (APR), loan term, monthly payment, total interest paid, and any upfront fees. A loan with a lower APR isn't always the cheapest if it has high fees or a longer term. Use this tool to see the full picture—total cost, monthly payment, and payoff time—for each option.
Why a Lower Payment Can Still Cost More Overall
A lower monthly payment often comes from extending the loan term. While this reduces your monthly obligation, you pay interest for a longer period, which can increase your total cost. For example, a 30-year mortgage has lower monthly payments than a 15-year mortgage, but you'll pay significantly more interest over the life of the loan. Always compare total cost, not just monthly payment.
How Term Length Affects Interest
The loan term (how long you have to repay) directly impacts your total interest. Shorter terms mean higher monthly payments but less total interest. Longer terms mean lower monthly payments but more total interest. If you can afford a higher payment, a shorter term usually saves money. Use this tool to see exactly how much you'd save with different terms.
What Extra Payments Do to Your Loans
Making extra payments beyond the required monthly payment reduces your principal faster, which means less interest over time and a faster payoff. Even small extra payments can make a big difference. For example, paying an extra $100/month on a $200,000 mortgage at 6% could save tens of thousands in interest and shorten the payoff by several years. Use the "Extra Monthly Payment" field to see how this affects each loan option.
Understanding APR vs Interest Rate
APR (Annual Percentage Rate) includes both the interest rate and any fees, giving you a more accurate picture of the loan's cost. A loan with a lower interest rate but high fees might have a higher APR than a loan with a slightly higher rate but no fees. Always compare APRs when shopping for loans, as it reflects the true cost of borrowing.
Note: This calculator is for educational purposes only and does not provide personalized financial advice. Actual loan terms, rates, and fees may differ. Always consult with a qualified financial advisor or loan officer for advice specific to your situation.
Frequently Asked Questions
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