Monthly payment versus full-term borrowing cost
Borrowing cost is interest plus the entered upfront fee, excluding the principal you receive and repay. A negative A-minus-B difference means offer A costs less over its full term. Monthly payment and total cost answer different questions. With a planned holding period, horizon cost is interest accrued through completed scheduled installments plus the upfront fee. Remaining principal is shown separately. Negative horizon difference favors A; the winner can differ from the full-term result. With the option off, the horizon comparison uses both completed loan terms.
If your starting point is a monthly payment budget rather than a principal amount, use the Loan Affordability Calculator to solve for the loan size that matches that budget.
The formula
P is the common amount borrowed, r is each nominal annual interest rate divided by 1,200, and n is that offer’s monthly payment count. Zero-rate payments are P ÷ n. Fees are paid separately at the start and are not financed into the balance. At a horizon of k payments, use the smaller of k and each offer’s term. Remaining principal is the present value of its unpaid installments. Horizon borrowing cost = installments paid + remaining principal + upfront fee − original principal, equivalent to interest paid plus fee. Principal settlement is not itself a borrowing cost. At zero payments only the fee has been incurred.
A smaller payment can still cost more
Borrow 12,000 with zero interest. A twelve-month term requires 1,000 monthly; a twenty-four-month term requires 500. If upfront fees are 100 and 200 respectively, the longer offer has the smaller payment but costs 100 more overall.
How to use this calculator
- Enter the common amount borrowed.
- Enter each offer’s contract rate, whole monthly term and separately paid upfront fee in its own group.
- Optionally enable a planned exit after a whole number of payments. Compare full-term and horizon costs along with each remaining principal amount.
Make the comparison consistent
Use the contractual interest rate rather than an APR that already includes fees. Entering an APR and then adding those fees again can double-count costs. If fees are financed, the amount borrowed and payment calculation change; this model assumes a separate upfront payment.
A lower full-term total may not be cheaper if you refinance or repay early. The optional holding period compares interest and upfront fees through the same payment month and shows what principal still needs settlement. Each loan stops generating payments and interest at its own maturity. This comparison does not discount cash flows or include exit penalties.
Compare an earlier repayment date
If you intend to refinance after twelve payments, compare costs through month twelve rather than assuming the entire contractual term. Upfront fees are already paid and are not prorated or refunded. The table shows cumulative installments and remaining principal so that a lower payment is not mistaken for lower interest cost.
A horizon beyond one offer’s maturity includes only that offer’s completed payments and leaves zero principal. A zero-month horizon compares the initial fees with the original principal still outstanding. Future fees, accrued daily interest and potential prepayment charges need a separate dated lender quote.
Assumptions & limitations
What this calculation assumes
- Both loans are fixed-rate, fully amortizing monthly loans.
- Payments occur at each month-end with no missed installments.
- Without an enabled horizon, each loan is held for its full term. An enabled horizon assumes settlement immediately after the specified scheduled payment.
What to keep in mind
- No variable rates, balloon payments, insurance, taxes, or early-repayment penalties are included.
- Results are estimates and do not replace lender disclosures.
Common questions
Does a lower rate always win?
No. A longer term or larger fee can outweigh a rate reduction. Inspect the total interest and fees as well as the quoted rate.
Why are the two principal amounts identical?
The tool compares offers funding the same need. Comparing unequal amounts would mix borrowing cost with the size of the loan.
Why can the lower-cost offer change at an earlier date?
Different rates generate interest at different speeds, while upfront fees are paid immediately. A fee that is recovered over a full term may not be recovered before your planned repayment date.
Sources & further reading
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