How to Compare Loan Offers Like a Pro

Why Comparing Loans Matters

A 0.5% difference in interest rate on a $250,000 mortgage adds up to over $25,000 in extra payments over 30 years. Knowing how to compare loan offers saves you real money.

The 3 Numbers That Matter

1. APR (Annual Percentage Rate)

APR includes the interest rate PLUS fees, making it the true cost of borrowing. Always compare APR, not just the advertised interest rate.

• Interest rate: 4.5% with $3,000 in fees
• APR: ~4.7% (the real cost)

2. Total Cost of the Loan

Add up every payment you will make over the life of the loan. A lower monthly payment with a longer term often costs MORE total.

Example: $20,000 auto loan at 6%

3. Monthly Payment

Make sure the payment fits your budget. The general rule: housing costs should be under 28% of gross income.

Fixed vs Variable Rate

Fixed rate locks your payment for the entire term. Choose fixed when:

• Interest rates are low
• You want predictable budgeting
• The loan term is long (15-30 years)

Variable rate can change with the market. Consider variable when:

• You plan to pay off early
• Current variable rates are significantly lower
• The loan term is short (under 5 years)

The 50/30/20 Rule for Loan Payments

Before taking a loan, check if it fits your budget:

• 50% of income: needs (housing, loans, groceries)
• 30% of income: wants (entertainment, dining)
• 20% of income: savings and extra debt payments

Tools for Loan Comparison

• Loan Calculator - calculate monthly payments and amortization schedules
• Compound Interest Calculator - see how interest compounds over time
• Mortgage Affordability - find out how much house you can afford
• Debt Payoff Calculator - plan your debt-free journey
• ROI Calculator - compare investment returns vs loan costs