Loan Comparison Calculator

Loan Comparison Guide

Monthly Payment vs Total Cost

A longer loan term reduces monthly payments but increases total interest paid significantly. Loan A: £10,000 at 8.9% over 36 months = £318/month, total interest £1,437. Loan B: £10,000 at 6.5% over 48 months = £238/month, total interest £1,406. Loan B has lower monthly payments AND lower total interest — it is clearly better. But this often is not the case: lower monthly payments usually come with higher total cost over time.

APR Is the Comparison Standard

Always compare APR (Annual Percentage Rate), not just nominal interest rate. APR includes fees and charges. A loan at 8% with a £300 arrangement fee may have a higher APR than a loan at 9% with no fees, depending on the term. UK law requires all consumer credit advertisements to show the representative APR — this is the rate offered to at least 51% of approved customers. Your personal rate may be higher.

The True Cost of a Longer Term

Extending a loan from 3 to 5 years on £10,000 at 9%: Monthly payment drops from £318 to £208 (saving £110/month). Total interest rises from £1,437 to £2,478 (paying £1,041 more). The 'affordable' monthly option costs £1,041 more in total. For car finance, credit cards, and personal loans, always calculate total cost rather than focusing only on monthly payments — lenders know monthly payment focus leads to higher-cost products.

When to Choose a Longer Term

A longer term (and lower monthly payment) is justified when: the monthly payment of the shorter term would genuinely stress your budget or prevent you maintaining an emergency fund. You have other high-interest debt to pay off first (avalanche method). You are investing the monthly payment difference at a higher return than the loan rate (rare for personal loans). For most consumer loans, the shorter affordable term is the financially optimal choice.