How to compare two loans properly
The lowest EMI is not always the cheapest loan. A longer tenure lowers the EMI but raises the total interest. A small difference in rate, or a high processing fee, can change which offer is better. Compare the total cost: all your EMIs plus the fees.
Total cost = EMI × months + processing fee
EMI = P × r × (1 + r)n ÷ ((1 + r)n − 1), with r the monthly rate and n the number of months.
Worked example
What else to check
- Floating or fixed rate. Floating rates can move with the market.
- Prepayment charges. Some lenders charge to close the loan early.
- Insurance and other add-ons. These raise your real cost.
- Equal tenure. For a fair comparison, set the same tenure for both loans.
Frequently asked questions
Should I compare using the same tenure?
Yes, if you can. Comparing the same tenure shows the effect of the rate and fee alone.
Does a lower rate always win?
Not if the other fee is much higher. Compare the total cost, which includes the processing fee.
Is processing fee refundable?
Usually not. It is paid once when the loan is sanctioned, so include it in your comparison.
Can I switch lenders later?
Yes, through a balance transfer, but check the new lender’s fees against the interest you would save.