Money, Explained From the Inside

Tools / Borrow / Chapters 11 and 15

Compare two loan offers

Offers rarely look alike: one has a lower rate, the other a longer term or smaller fee. Put them side by side on the same amount.

1 · The idea

Compare on total cost of credit

Calculate each offer’s total repayment and add its fees, then compare. The lowest payment is rarely the lowest cost.

The formula

Cost of credit = payment × n − P + fees

P
amount borrowed (same for both)
n
months in the term
fees
every upfront charge

2 · A worked example

Same 8% on $10,000: 24 months costs $854.55 in interest; 60 months costs $2,166. The longer loan has the lower payment ($202.76 vs $452.27) and the higher cost.

3 · Now use your own numbers

Change anything. The result updates instantly.

Offer A
Offer B
Cheaper overall
Offer Aby $472.11
Lower payment
Offer B$78.27 a month less
Offer AOffer B
Monthly payment$373.27$295.00
Total repaid$13,438$14,160
Cost of credit$1,688$2,160
Effective annual rate9.3%8.7%

What this means

If the cheaper offer is not the one with the lower payment, you are looking at the central trap in borrowing: a payment you can afford is not the same as a price you can afford.

The effective annual rate lets you compare offers with different terms and fees on equal terms.

Illustrative, not personal advice. Inspired by Chapters 11 and 15 of Money, Explained From the Inside. Your figures stay in this browser. Real products add terms, taxes and conditions that this simple model leaves out.

4 · Take care

What this tool can’t see

  • This compares price only. Check flexibility, early-repayment charges and what happens if you miss a payment.

5 · Go further

Where this fits

Private to this device. Nothing is sent anywhere.

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