How to Compare Loan Offers Effectively
When comparing loans, look beyond the monthly payment. Use the amortization formula M = P × [r(1+r)^n] / [(1+r)^n − 1] for each offer, then calculate the total cost = M × n and total interest = total cost − principal. A loan with a lower monthly payment but longer term may cost thousands more in interest. For example, a $20,000 loan at 7% for 5 years costs $3,761 in interest, while the same loan at 6% for 7 years costs $4,414 — a lower rate but higher total cost because of the longer term.