Loan Comparison Calculator With Amortization

Loan Comparison Formula:

\[ \text{Total Interest} = (\text{PMT} \times n) - \text{PV} \]

Loan 1 Details

Principal Amount (PV):

USD

Annual Interest Rate:

Loan Term:

years

Loan 2 Details

Principal Amount (PV):

USD

Annual Interest Rate:

Loan Term:

years

Comparison Results

Loan 1 Monthly Payment (PMT1):

Loan 1 Total Interest:

Loan 2 Monthly Payment (PMT2):

Loan 2 Total Interest:

Interest Difference:

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is Loan Comparison?

Loan comparison helps borrowers evaluate different loan options by calculating and comparing the total interest paid over the life of each loan. This calculator uses amortization principles to show how different interest rates and terms affect your total repayment amount.

2. How Does the Calculator Work?

The calculator uses the standard loan amortization formula:

\[ \text{PMT} = \frac{\text{PV} \times r}{1 - (1 + r)^{-n}} \] \[ \text{Total Interest} = (\text{PMT} \times n) - \text{PV} \]

Where:

\( \text{PMT} \) — Monthly payment amount
\( \text{PV} \) — Principal loan amount
\( r \) — Monthly interest rate (annual rate ÷ 12)
\( n \) — Total number of payments (term in years × 12)

Explanation: The formula calculates the fixed monthly payment required to fully repay a loan over its term, then computes the total interest by multiplying the payment by the number of months and subtracting the principal.

3. Importance of Loan Comparison

Details: Comparing loans helps borrowers understand the true cost of borrowing. A lower interest rate or shorter term can save thousands in interest payments, even if the monthly payment is slightly higher.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate, and loan term for two different loans. The calculator will show the monthly payment and total interest for each, helping you make an informed decision about which loan better suits your financial situation.

5. Frequently Asked Questions (FAQ)

Q1: Why compare total interest rather than just monthly payments?
A: While monthly payments affect your budget, total interest shows the actual cost of borrowing. A loan with slightly higher payments might save you money overall.

Q2: How does loan term affect total interest?
A: Shorter terms typically have higher monthly payments but much lower total interest. Longer terms reduce monthly payments but increase total interest paid.

Q3: What's more important - interest rate or loan term?
A: Both are important. Generally, a lower interest rate saves money, but a shorter term can save even more by reducing the time interest accrues.

Q4: Are there other factors to consider when comparing loans?
A: Yes, consider fees, prepayment penalties, variable vs. fixed rates, and your ability to make extra payments.

Q5: Can I use this for mortgage comparisons?
A: Yes, this calculator works for any amortizing loan including mortgages, auto loans, and personal loans.