A borrower has two loan options for a $35,000 car: a 5-year loan at 7.9% from the dealer, or a 4-year personal loan at 6.5% from the credit union. Before signing anything, they need to know which costs less in total and whether the shorter term is worth the higher monthly payment.
Loan Comparison Calculator
Loans
LOAN A
LOAN B
A 0.3% rate difference on a $500K loan over 30 years can mean over $30,000 in extra interest. Always compare the comparison rate (which includes fees) not just the advertised rate.
Results are estimates for planning purposes. Verify with current standards and a qualified professional.
1 What this calculator does
Compares two loans side by side -- different amounts, rates and terms. Shows monthly repayment, total amount repaid and total interest for each loan. Identifies which loan saves more money over the full term.
2 Formula & professional reasoning
Monthly repayment = P x [r(1+r)^n] / [(1+r)^n - 1]
where P = principal, r = monthly rate, n = term in months
Total repaid = Monthly payment x n
Total interest = Total repaid - Principal
Better loan = Lower total repaid (assuming same loan amount)
The annuity formula calculates the constant monthly payment that repays the principal plus interest over the loan term. For comparison purposes, total interest paid is the most meaningful metric -- it represents the true cost of borrowing. A shorter term always means higher monthly payments but lower total interest because the principal is outstanding for fewer months. The comparison is most useful when both loans are for the same purpose (same principal) but different rates or terms.
3 Worked examples
⚠️ Illustrative example only — not clinical or professional instruction.
Basic
Car loan -- dealer vs credit union
Given: Loan A: $35,000 at 7.9% for 60 months | Loan B: $35,000 at 6.5% for 48 months
Working:
Loan A monthly: $35,000 x [0.006583x(1.006583)^60] / [(1.006583)^60-1] = $709/mo | Total A: $709x60=$42,540 | Interest A: $7,540 | Loan B: $35,000 x [0.005417x(1.005417)^48] / [(1.005417)^48-1] = $832/mo | Total B: $39,936 | Interest B: $4,936Answer: Loan A: $709/mo | $7,540 total interest | Loan B: $832/mo | $4,936 total interest -- Loan B wins by $2,604
💡 Loan B costs $123/month more but saves $2,604 total. Payoff is 12 months sooner. If the extra $123/month is manageable, Loan B is clearly better.
Standard
Home loan -- different terms, same rate
Given: Loan A: $500,000 at 6.5% for 30 years | Loan B: $500,000 at 6.5% for 25 years
Working:
Loan A: $3,160/mo | Total: $1,137,600 | Interest: $637,600 | Loan B: $3,378/mo | Total: $1,013,400 | Interest: $513,400Answer: Loan B saves $124,200 in interest but costs $218/mo more | 5 years shorter
💡 On a $500,000 home loan, cutting 5 years off the term saves $124,200 in interest. $218/month extra x 300 months = $65,400 extra paid vs $124,200 saved -- net saving of $58,800 from the perspective of total repaid.
Advanced
Different amounts -- refinancing decision
Given: Current loan (Loan A): $280,000 remaining at 7.2% for 22 years | New loan (Loan B): $285,000 at 6.0% for 25 years (incl refinancing costs)
Working:
Loan A monthly: $2,192 | Total remaining: $578,208 | Interest: $298,208 | Loan B monthly: $1,832 | Total: $549,600 | Interest: $264,600Answer: Loan B: $360/mo cheaper | $33,600 less total interest despite larger principal and longer term
💡 Lower rate wins despite the refinancing costs being capitalised into the loan. However if the borrower keeps paying at $2,192/month on the new loan, they pay it off in approximately 18 years -- saving even more total interest.
4 Sanity check
Monthly payment vs total cost trade-off
Lower monthly payment often means longer term and more total interest paid
Always compare total interest, not just monthly payment.
Same principal for fair comparison
If comparing loans for different amounts the comparison rate matters more than total cost
Comparison rate (AU)
Australian comparison rate includes fees and charges -- use it alongside the interest rate for true cost comparison
The comparison rate on a $150,000 30-year loan shows the true annual cost including standard fees.
Early repayment
Paying extra on either loan after selecting it eliminates the interest difference quickly
5 Common errors
| Error | Cause | Consequence | Fix |
|---|---|---|---|
| Choosing the loan with the lowest monthly repayment without checking total cost | Focusing on affordability rather than total cost | Choosing a longer-term loan that costs thousands more in interest | Always compare total interest paid over the full term. A lower monthly payment from a longer term is a more expensive loan overall. |
| Not checking the comparison rate in AU for true cost | Comparing advertised interest rates without accounting for fees | A loan with a lower interest rate but high fees may be more expensive than a higher-rate loan with no fees | In Australia, use the comparison rate (which includes standard fees) for side-by-side comparison. The comparison rate must be disclosed on loan advertising. |
| Comparing loans with different principals as if they are equivalent | One loan is for more than the other but comparison focuses on monthly payment | Misleading conclusion about which is cheaper | For a fair comparison of costs, use total interest on the same principal. For decisions involving different loan amounts, focus on the interest rate (or comparison rate) and total cost per dollar borrowed. |
| Not factoring in break costs when comparing existing loan to refinance options | Comparing the outstanding balance loan as if it could be transferred for free | Refinancing costs make the new loan more expensive than calculated | Add discharge fees ($150-$350 AU), application fees ($0-$600) and any government fees to the new loan principal when modelling the refinance scenario. |
6 Reference & regulatory links
7 Professional workflow
Common tools used alongside this one:
Home Loan Repayment Calculator
Home Loan Repayment Calculator shows the full amortisation picture for the better loan after selecting it
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Extra Mortgage Repayment
Extra Mortgage Repayment Calculator shows how much interest is saved by paying more than the minimum on the chosen loan
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Monthly Budget Tracker
Monthly Budget Tracker checks whether the monthly repayment on the chosen loan fits the household cash flow
→