Loan Comparison Calculator

Loan Comparison Calculator can be used to compare the installments that are paid periodically, further the total interest outgo on the loan and then a decision can be taken as to which loan terms and conditions should be opted for.

Loan Comparison Calculator

[P* R * (1+R)^N]/[(1+R)^N-1]

Wherein,

P is the loan amount
R is the rate of interest per annum
N is the number of period or frequency wherein loan amount is to be paid

Loan Amount (P)

ROI per annum (R)

No. of Period (N)

About the Loan Comparison Calculator

The formula for calculation Loan Comparison is per below for minimum 2 loans and further if there are more than the same formula can be used:

Loan I Computation

[P * R * (1+R)^N]/[(1+R)^N-1]

Loan II Computation

[P * R’ * (1+R’)^N’]/[(1+R’)^N’-1]

Now Both loans will be compared,

Wherein,

P is the loan amount
R is the rate of interest per annum
N is the number of period or frequency wherein the loan amount is to be paid
R’ is the rate of interest per annum for the second loan
N’ is the number of period or frequency wherein loan amount is to be paid or the second loan

The Loan Comparison Calculator can be used to compare loan across different interest rate and across different tenures or even across different financial institution which shall aid the borrower to make decision which shall be fruitful for him, for example, easy installments, lesser cash outflow in form of interest, or extended installments, etc. as per his requirements.

Loans have to be planned otherwise one would end up paying a higher interest rate and even the installment amount would be huge. Therefore, it is essential to compare loans across and then make a decision.

How to Calculate using the Loan Comparison Calculator?

One needs to follow the below steps in order to calculate the monthly installment amounts.

Step #1: First of all, determine the loan amount which needs to be borrowed. Banks usually provide more loans amounts to those who have a good credit score and less amount to those who have a lower credit score. First, we shall enter the principal amount:

Step #2: Multiply the principal by a rate of interest for the Loan I.

Step #3: Now, we need to compound the same by rate until the loan period for the Loan I.

Step #4: We now need to discount the above result obtained in step 3 by the following:

Step #5: After entering the above formula in excel we shall obtain periodically installments for Loan I.

Step #6: Now repeat the same steps from 2 to 4 for Loan II and so on if there are multiple loans.

Step #7: Now one can compare the interest outflow and thus then can take decisions accordingly if it’s solely based on interest outflow.

You can download this Loan Comparison Calculator Excel Template here – Loan Comparison Calculator Excel Template

Example #1

Mr. A is working in a multinational company and is now looking to borrow money to purchase a house. He is currently perplexed as to from which bank should he borrow the money. He has two options in hand one is offered by ABHC bank which is quoting him 8.5% fixed rate of interest and the loan period will be 18 years and another bank KCKC bank is charging 8.25% fixed rate of interest and loan period will be 20 years and also the second bank would charge processing fee at rate of 0.50% and has to be paid upfront whereas ABHC is charging no processing fees. Both banks are giving facility to pay installments monthly.

You are required to compare the loans and advise where should the loan be taken from provided if he needs to borrow $150,000?

Solution:

We need to calculate the Installment amount; the loan amount is $150,000.

LOAN I

The number of periods it is required to be paid is 18 years but since here Mr. A is going to pay on monthly basis hence the number of payments that he shall be required to be paid is 18*12 which is 216 equally installments and lastly the rate of interest is 8.50% fixed which shall be calculated monthly which is 8.50%/12 which is 0.71%.

Now we shall use the below formula to calculate the EMI amount.

Monthly Installment = [P * R * (1+R)^N]/[(1+R)^N-1]

= [150,000 * 0.71% * (1 + 0.71%)^216 ] / [ (1 + 0.71%)^216 – 1 ]
= $1,358.19

Interest Flow

Interest outflow can be calculated by multiplying the installment amount by a number of periods and then subtracting it from the loan amount.

= $ 1358.19 * 216- $150,000.00
=$143,368.22

LOAN II

The number of periods it is required to be paid is 20 years but since here Mr. A is going to pay on monthly basis hence the number of payments that he shall be required to be paid is 20*12 which is 240 equally installments and lastly, the rate of interest is 8.25% fixed which shall be calculated monthly which is 8.25%/12 which is 0.69%.

Now we shall use the below formula to calculate the EMI amount.

Monthly Installment = [P * R’ * (1+R’)^N’]/[(1+R’)^N’-1]

=[150,000 * 0.69% * (1 + 0.69%)^240 ] / [ (1 + 0.69%)^240 – 1 ]
= $1,278.10

Interest Flow

= $1278.10 * 240 – $ 150000.00
= $ 156743.63

Now we can compare both the loans and figure out where the interest flow is more.

Even though at first instance KCKC offers a lower rate but since it offering higher tenure, the borrower will end up paying more interest and hence we have here only two options Mr. A would be preferring to take a loan from ABHC bank.

Example #2

There are two loan offers for a client per below details:

The loan amount is the same which is $100,000. Based on the given information, you are required to compare the loans and advise the client as to which loan should be preferred provided the requirement of the client is the total cash outflow should be lower.

Solution:

We need to calculate the Installment amount; the loan amount is $100,000.

LOAN I

The number of periods it is required to be paid is 10 years but since here the borrower is going to pay on quarterly basis hence the number of payments that he shall be required to be paid is 10*4 which is 40 equally installments and lastly the rate of interest is 15.00% fixed which shall be calculated quarterly which is 15%/4 which is 3.75%.

Now we shall use the below formula to calculate the EMI amount.

Monthly Installment = [P * R * (1+R)^N]/[(1+R)^N-1]

= [100,000 * 3.75% * (1 + 3.75%)^40 ] / [ (1 + 3.75%)^40 – 1 ]
= $4,865.95

Interest Flow

Interest outflow can be calculated by multiplying the installment amount by the number of periods and then subtracting it from the loan amount.

= $4865.95 * 40 – $100000.00
= $ 94637.83

LOAN II

The number of periods it is required to be paid is 8 years but since here the borrower is going to pay on semi-annually basis hence the number of payments that he shall be required to be paid is 8*2 which is 16 equally installments and lastly the rate of interest is 18% fixed which shall be calculated semi-annually which is 18%/2 which is 9.00%.

Now we shall use the below formula to calculate the EMI amount.

Monthly Installment = [P * R’ * (1+R’)^N’]/[(1+R’)^N’-1]

= [100,000 * 9.00% * (1 + 9.00%)^16 ] / [ (1 + 9.00%)^16 – 1 ]
= $12,029.99

Interest Flow

= $ 12029.99 * 16 – $100000.00
= $ 92479.86

Now we can compare both the loans and figure out where the interest flow is more.

Hence, from above it can be said that Loan II should be preferred even though the rate of interest is high since the total cash outflow is less.

Conclusion

Loan comparison calculator can be used to compare loans across tenure, banks and rate of interest, whichever meets the borrower’s requirement and accordingly the borrower will take loan whether it being less interest outflow, or extended installment or lower installment, etc.