A Loan Comparison Checklist: Rate, Fees, APR and Total Cost

Gather each offer in writing and compare the same things for every one.

• Loan amount and term. Make sure you are comparing the same principal and the same number of payments.
• Rate type. Fixed, variable or adjustable? If adjustable, how often does it reset, what is the cap, and what index does it follow?
• Quoted rate and what it means. Flat, nominal reducing-balance, or effective? See the EMI vs flat-rate guide.
• Fees. Origination, processing, documentation, valuation, insurance and any broker fees. Are they paid up front or financed?
• APR. The annual percentage rate folds certain fees into one comparison figure. It is useful for like-for-like comparison but rests on assumptions, such as keeping the loan to the end of the term.
• Monthly payment and total repayment. Total repayment = payment × number of payments.
• Prepayment terms. Is there a penalty for paying early or paying extra?
• Features and conditions. Payment holidays, offset accounts, late fees, required insurance or products bundled with the loan.
• How long you expect to keep the loan. This often decides which offer wins.

A lender may offer a lower rate in exchange for an up-front fee. The fee is a sunk cost; the rate saving accrues month by month. If you repay or refinance early, you may not stay long enough to recoup the fee.

Both loans are $200,000 for 30 years.

Offer A’s payment is $51.91 lower. To compare fairly over a holding period, add everything paid out of pocket (payments plus the fee) to the balance still owed at the end of that period.

Over five years the two offers are essentially tied; the break-even is at about month 60. A quick “fee ÷ monthly saving” gives about 77 months, which overstates the wait because Offer A’s lower rate also pays down principal faster. If you expect to move or refinance within five years, B is at least as good. If you expect to keep the loan longer, A wins.

Treating the $4,000 fee as a reduction in the amount you actually receive, Offer A’s effective cost is about 6.19% a year, compared with the 6.4% of Offer B. The APR gets this broadly right, but it still assumes you hold the loan for the full term, which is why the holding-period table is more informative.

• Is the quoted rate fixed for the whole term?
• What is the APR and what fees are included in it?
• What is the total amount I will repay?
• What happens if I pay off the loan early or pay extra each month?
• Are there any products I must buy to get this rate?
• Can the rate be locked, and for how long?

For a car loan versus a personal loan, compare the same four things: effective rate, fees, term and total repayment. For a variable-rate loan, compare using a rate you consider plausible over the horizon, not only the starting rate. Run a scenario with the rate rising by one or two points to see how much risk you are carrying.

• Choosing on the monthly payment alone, which can be low because the term is long.
• Comparing a flat rate to a reducing-balance rate.
• Ignoring up-front fees or treating them as small.
• Not asking about prepayment penalties.
• Assuming you will hold the loan for the full term when you will probably refinance or sell sooner.

Run each offer through the Loan / EMI or Mortgage Calculator to get the payment and total interest. Add fees by hand, or use the Mortgage Points Calculator to see whether paying points for a lower rate breaks even in your timeframe. Results are estimates and do not replace the lender’s official disclosures.