Two loan offers rarely differ only in the headline rate. Enter both — amount, rate and term — and compare monthly payments and the total interest each one costs.
A lower rate over a longer term can still cost more in total interest than a higher rate repaid quickly. Comparing the totals side by side makes that trade-off obvious.
Fees and insurance are not included here; for EU consumer credit where the law requires an all-in APR, the EU Consumer Loan calculator reflects that.
Comparing on total interest assumes both loans run to term, which is often the assumption that breaks first. A loan repaid early costs far less than the total shown, so early-repayment terms belong in the comparison: a lower-rate loan with a redemption penalty can be the more expensive one for a borrower who expects a windfall.
Rate type matters as much as rate level over a long term. A variable rate quoted below a fixed one is a lower payment today and an open question afterwards, and the honest comparison is between the fixed rate and the range the variable could plausibly occupy — not against its current value.
The amount is worth interrogating too. Lenders frequently offer more than was asked for, and a rate that improves at a higher tier is a real discount only if the extra borrowing was wanted. Paying interest on money you did not need in order to secure a better rate on it is a common way to lose the saving.
Frequently asked questions
How do I compare two loan offers fairly?
Compare the total interest and total cost over the life of each loan, not the headline rate. If fees are involved, the all-in APR is the number that makes offers comparable.
Is a longer loan term better?
A longer term lowers the monthly payment but raises the total interest, because the balance is outstanding for longer. It is a cash-flow choice, not a saving.
Should I choose the lower rate or the lower monthly payment?
They answer different questions. The lower rate minimizes cost at the same term; the lower payment protects your monthly budget. Compare both loans over the same term to see the real price difference.