Comparing two offers: which number decides
Short answer
Two offers are compared by the total amount payable and by the APR, at the same amount and the same term — the monthly instalment on its own does not show which loan is cheaper.
Equalise the terms before comparing
A comparison only makes sense at the same amount and the same term. A lower instalment over a longer term almost always means a higher total. So the parameters are equalised first, and the numbers looked at second.
The two numbers that matter
The total amount payable shows what the loan costs at the end. The APR shows the price as a percentage and allows comparison between offers of different sizes. Either one without the other gives an incomplete picture.
Where the difference hides
Usually in the fees, in mandatory additional services and in the terms on late payment — that is, in documents that are not in the advert. An offer with a lower interest rate and a higher APR is not cheaper; the gap between those two numbers is precisely the price of everything else.
Frequently asked questions
- Can a longer term be the better choice?
- It can, when the goal is a smaller instalment and that reduces the risk of falling behind. But the price is almost always a higher total — a deliberate choice, not a better offer.
- Why does the APR differ at the same interest rate?
- Because the APR also includes fees, commissions and mandatory costs. If two offers have the same rate but a different APR, the difference is in those.
Have a question? Call me.
[email protected]