Understanding Loan Comparison
Real-world scenario: A: $40k / 9% / 48 mo; B: $40k / 7.5% / 60 mo.
What is Loan Comparison?
A two-offer screen for same-purpose loans. Fees outside principal should be added into each P if you want them financed.
- Two independent loans
- Fixed-rate amortizing math
- Negative ΔEMI means B is cheaper monthly
The Formula
EMI and Interest Gap
ΔEMI = EMI_B − EMI_A; ΔInterest = (EMI_B×n_B − P_B) − (EMI_A×n_A − P_A)
Worked Example
Scenario: A: $40k / 9% / 48 mo; B: $40k / 7.5% / 60 mo.
Step 1: Compute EMI_A and EMI_B
Step 2: ΔEMI = EMI_B − EMI_A
Step 3: Compare total interest in the explanation
Answer: Result shows EMI difference; explanation lists both EMIs and interest totals.
Common Use Cases
- Dealer vs bank: same car, two quotes
- Personal loan shop: rate vs term
- Refi vs stay: rough payment delta
Pro Tips
- Match principals before comparing
- Shorter term often means higher EMI, lower interest
- Fold origination fees into principal when financed
Limitations: Loan Comparison results are educational finance aids—not loan offers, lease contracts, refinance quotes, or tax advice. Confirm figures with lenders and a qualified professional.
FAQ
Can principals differ?
Yes—useful when one offer finances fees. Read both EMI and total interest in the explanation.
Is APR the same as interest rate?
Enter the rate each lender uses for the payment formula. True APR with fees may need the Advanced APR tool.
Authoritative References
For consumer finance education, consult:
- CFPB — mortgages, credit cards, and consumer lending
- FTC — consumer protection basics
- Investopedia — loan and lease explainers