Financing guide

What a loan really costs

Two loans can advertise the same rate and still cost very different amounts. The rate is only one of at least five numbers that set what you repay, and it is the number built for easy comparison. This guide covers the other four and shows how to put them on a single footing so the comparison is honest. The lowest rates are only available to the most qualified applicants.

The five numbers that decide the cost

**The interest rate**, fixed or variable. A fixed rate makes the payment known; a variable rate does not, and in Canada the market prices against the Bank of Canada policy rate.

**The term**, since interest accrues for as long as the balance is outstanding. Doubling the term roughly doubles the interest, even when the payment is smaller.

**The origination fee**, usually deducted from what you receive. A 5% fee on a $10,000 loan leaves you $9,500 in hand and $10,000 of debt.

**Insurance and add-ons**, often shown as optional and priced per dollar borrowed instead of as a rate.

**Prepayment terms**, which determine whether overpaying lets you exit the schedule cheaply.

Get both the amount you receive and the amount you repay in writing.
Ask whether the origination fee comes out of the principal.
Ask whether extra payments reduce principal right away.
Ask what the rate reverts to when a promotional period ends.

Putting every offer on one footing

The only fair way to compare two loans is total repaid for the same borrowed amount over the same period. Run that number and the marketing falls apart: a lower rate with a big fee often loses to a slightly higher rate with no fee.

The loan payment calculator on this site returns the monthly payment, total interest and total repaid, and shows balance and cumulative interest at each year end, which is where a long term gives itself away.

Average U.S. prices published by the Bureau of Labor Statistics
Item	Average price	Unit	Reference period
Apples, Red Delicious, per pound	$3.71	lb	2026-August
Bacon, sliced, per pound	$6.61	lb	2026-August
Bananas, per pound	$2.01	lb	2026-August
Beef steaks, USDA Choice, boneless, per pound	$6.77	lb	2026-August
Bread, white pan, per pound	$1.82	lb	2026-August
Chicken breast, boneless, per pound	$4.02	lb	2026-August
Coffee, 100%, ground roast, all sizes, per pound	$0.652	lb	2026-August
Cookies, chocolate chip, per pound	$4.17	lb	2026-August

Source: U.S. Bureau of Labor Statistics average price data, U.S. city average, not seasonally adjusted. Every figure is as published, and none is estimated.

Reading a published price index correctly

Prices move, and official indexes are how you verify what actually changed instead of what someone asserts. The U.S. series below is published monthly by the Bureau of Labor Statistics and feeds directly into the official inflation calculation.

Affordability comes first

Before comparing offers, work out the payment you can carry. The affordability calculator applies a debt-to-income limit to gross monthly income, subtracts current debt payments, and turns the remainder into a loan amount. Lenders use their own limits and weigh credit history, employment and collateral, so treat the result as a ceiling to test quotes against, not as an approval.

The comparison that settles it

For each offer, calculate total repayable on the same borrowed amount over the same number of months. That one figure absorbs the rate, the term and every financed fee, and it is the number marketing tends to avoid. If an offer cannot produce it, multiply the payment by the number of payments and add any upfront fee.

When a deducted fee makes the amounts borrowed differ, normalise by comparing total repayable per dollar actually received. That is the honest unit price of the borrowing, and the number to rank offers by.

A checklist for every offer

Fill in the same eight fields for each offer, then compare the last one: amount borrowed; amount received after fees; annual rate and whether fixed or variable; term in months; monthly payment; total repayable; whether extra payments cut principal immediately; and any prepayment penalty. The sixth field decides the comparison, because only it includes every fee and every month of interest.

When an offer cannot answer one of the eight, treat it as incomplete. Do not assume the missing item is free.

Why the monthly payment is the wrong headline

A monthly payment can be shrunk by stretching the term, which costs money, or by adding a balloon payment, which shifts the cost instead of removing it. A balloon keeps the payment small for the whole term and then demands a lump sum or a refinance at whatever rate exists at that moment. If a payment looks much lower than other offers on the same amount, ask what happens at the end of the term before anything else.

Insurance, add-ons and what is truly optional

Payment protection, credit insurance and extended warranties are routinely offered with a loan and priced per dollar borrowed, which makes them look cheap while costing a great deal relative to the coverage. They are often optional, and in several jurisdictions they must be presented that way. Ask outright whether declining changes the rate or the approval, and get the answer in writing.

If you do want the coverage, buy it separately where you can, so its real price is visible instead of buried as a per-dollar-of-balance charge in the payment schedule.

If the loan turns out worse than described

In the United States, mortgage disclosures carry a three-day right of rescission on certain refinances and a right to a corrected Closing Disclosure before consummation. Consumer loans generally carry no such right, so the disclosure you received before signing is your record. In Canada, federally regulated lenders must disclose the cost of borrowing and the annual percentage rate, and provincial consumer protection law sets cooling-off rules for some loan types.

Keep the disclosure, the signed agreement and the payment schedule. If the loan doesn't match what you were told, start with a written complaint to the lender, then escalate to the relevant regulator: the CFPB in the United States, or the Financial Consumer Agency of Canada at the federal level.

The three questions that end most comparisons

Ask what the rate is, what the total repayable is over the full term, and whether extra payments cut principal on the day they arrive. The first question is the one marketing answers. The second is the one that decides the cost. The third decides whether you can escape the schedule cheaply if your income improves.

A lender that answers all three in writing has given you enough to compare honestly. A lender that answers only the first has told you which number it wants you to look at, and that is itself information worth recording before you sign anything.