How the comparison works
Each loan's monthly payment comes from the standard amortization formula:
where L is the amount borrowed, r the monthly interest rate, and n the term in months. Total interest is the payment times the number of months, minus the amount borrowed. A lower rate on a longer term often gives you a smaller payment and a bigger total cost at the same time, which is exactly the trap this tool is built to catch.
Worked example
$20,000 at 6.5% over 60 months costs $391.32 a month and $3,479.38 in interest. The same $20,000 at 5.9% over 72 months costs $330.51 a month but $3,797.04 in interest, so the longer loan feels cheaper and costs more.
Frequently asked questions
Why does a longer term cost more even with a lower rate?
Interest is charged on the balance for as long as the balance exists. Stretching the term keeps money owed for longer, and those extra months of interest usually outweigh the saving from a slightly lower rate. In the example above, twelve extra months more than cancel out a 0.6% rate cut.
How do I compare loans that charge fees?
The rates in this tool are interest only. If a loan has an arrangement or origination fee, look at its APR instead, which folds fees into a single comparable rate. A loan with a lower interest rate but heavy fees can carry a higher APR than a plain loan.
Should I pick the lowest payment or the lowest total cost?
It depends on your cash flow. If the higher payment would strain your budget, the longer loan is the safer choice. Just make that decision knowing what the lower payment costs you in total, rather than finding out at the end.