By MoneyMaths · Calculation methodology
Imagine borrowing $20,000 at a fixed annual interest rate of 8%. You can repay over three years or five years. The longer term makes each payment smaller, but interest is charged for longer.
| Same $20,000 loan at 8% | 3 years | 5 years |
|---|---|---|
| Monthly payment | $626.73 | $405.53 |
| Total interest | $2,562.18 | $4,331.67 |
| Total repaid, excluding fees | $22,562.18 | $24,331.67 |
In this example, the five-year option reduces the monthly payment by about $221.20, but adds $1,769.49 in interest. These figures use unrounded monthly payments internally and a smaller final payment if necessary; a lender’s rounding can differ.
Add fees before comparing the totals
If the five-year offer also has a $500 fee paid upfront, its total cash cost becomes $24,831.67. A fee added to the loan balance is different: you borrow more and generally pay interest on that amount too. Our comparison tool models a fee paid separately, so do not put a financed fee into the upfront-fee field.
Interest rate and APR are different measures. APR incorporates certain borrowing charges as well as interest; our tool shows cash totals and does not calculate APR. Compare the lender’s formal disclosures on a consistent basis. See the CFPB explanation of interest rate and APR.
Check the monthly commitment
Suppose take-home income is $2,000, existing costs are $1,200 and you reserve $300 for savings and irregular expenses. That leaves $500 before a new loan payment. The three-year example exceeds that figure by $126.73. The five-year example leaves $94.47. This is a cash-flow comparison, not a conclusion that either loan is affordable: omitted expenses and changes in income still matter.
Use your own offers
- Enter the same amount borrowed for both offers.
- Use the fixed interest rate and term from each lender.
- Add any fee paid separately.
- Open the optional budget check and include existing debt payments in expenses.
- Ask about variable rates, balloon payments and early-repayment fees before deciding.
Compare your two loan offers →
Example calculated with MoneyMaths v7. Fixed rates, monthly interest and month-end payments. No taxes or insurance. Updated 21 September 2026.