How to compare two car loans
The lower monthly payment is not always the cheaper loan. A longer term spreads the same borrowing over more months, which lowers the payment but usually raises the total interest.
Compare the total cost of each loan, not just the payment. The difference is the real saving, and it is what you give up or gain by choosing one offer over the other.
Worked example
Loan A: £20,000 at 7.9% over 5 years costs £404.57 a month and £24,274.28 in total, of which £4,274.28 is interest.
Loan B: £20,000 at 6.4% over 7 years costs £296.02 a month but £24,865.80 in total, of which £4,865.80 is interest. Loan A is £591.52 cheaper overall, even though Loan B has the lower payment.
What the comparison misses
Fees are not included unless you add them to the amount. A arrangement fee on the cheaper loan can wipe out the saving.
The comparison also ignores what you could earn on the money you are not spending each month. If the lower payment lets you invest the difference, the cheaper loan is not automatically the better choice.
Inputs for the auto loan comparison calculator
Loan A amount
The amount financed on the first offer.
Loan A rate
The yearly rate on the first offer.
Loan A term
The term of the first offer, in years.
Loan B amount
The amount financed on the second offer.
Loan B rate
The yearly rate on the second offer.
Loan B term
The term of the second offer, in years.
CALCULATOR QUESTIONS
Auto loan comparison calculator questions
Which loan is cheaper, A or B?
In the example, Loan A: £24,274.28 against £24,865.80, a saving of £591.52.
Should I choose the lower monthly payment?
Only if cash flow matters more than total cost. A longer term usually costs more in interest.
How do fees change the comparison?
Add any fee to the amount financed for the loan that charges it, then compare again.
Does the comparison include a deposit?
Enter the amount actually financed after any deposit, so both loans are measured on the same basis.