Why the lower payment can be the worse deal
Lenders love to advertise the monthly payment because it's the number that feels affordable. But a lower payment often just means a longer term — and stretching a loan over more years piles on interest even at a similar or lower rate. The only fair comparison is total interest and total amount repaid, which this calculator puts side by side.
A worked example
Borrow $25,000. Offer A is 7.5% over 4 years (~$605/month, ~$4,050 interest). Offer B is 6.9% over 6 years (~$425/month, ~$5,600 interest). Offer B has the lower rate and the lower payment — yet it costs about $1,550 more in total, because you're borrowing for two extra years. The "better-looking" offer is the more expensive one.
What to compare, and what to watch
- Total interest and total repaid — the true cost. Prioritise these over the monthly payment.
- APR, not just the rate — APR folds in mandatory fees, so it's a fairer rate comparison. Origination fees can make a "lower rate" cost more.
- Term trade-off — a shorter term means higher payments but far less interest. Choose the shortest term whose payment you can comfortably afford.
- Prepayment penalties — a loan you can overpay freely is more valuable; check before signing.
How to use the result
If your goal is the lowest total cost, pick the offer with the least total interest you can afford the payment on. If cash flow is tight, you might knowingly accept more total interest for a lower payment — but make that trade with eyes open, seeing exactly what the flexibility costs. Either way, decide on the full numbers, not the headline payment.