Compare APR, Not Just Interest Rate
APR (Annual Percentage Rate) reflects the interest rate plus fees, expressed as a single annual percentage. When comparing offers from different lenders, always compare APRs. A lender offering 6.75% with zero origination fees may have a lower APR than a lender offering 6.50% with 1 point in origination charges.
Total Interest Paid
Calculate the total interest you will pay over the full term on each loan offer. A $50,000 personal loan at 8% for 36 months costs $6,405 in total interest. The same loan at 7% for 60 months costs $9,404 in total interest. The lower rate on the longer term costs $2,999 more because the balance is outstanding longer.
Lender Fees and Closing Costs
For mortgages, compare Section A of the Loan Estimate (origination charges) across lenders. For personal loans, compare origination fees explicitly -- some lenders charge 1% to 8% of the loan amount as an upfront fee that effectively increases the total cost of the loan.
Prepayment Terms
If you may pay off the loan early, check for prepayment penalties before committing. A loan with a lower rate but a prepayment penalty may cost more than a slightly higher-rate loan without one if you refinance or pay off early.
Reading the Fine Print
Beyond rate and fees, check for: rate-lock guarantees and their expiration, whether the rate is truly fixed or has an adjustment clause buried in the note, autopay discounts (commonly 0.25 points) that only apply if you enroll, and any requirement to open a separate deposit account with the lender to qualify for the advertised rate.
Common Comparison Mistakes
Comparing offers on different days without noting rate movement. Rates can shift daily -- request all quotes on the same day, or note the date of each quote, for a fair comparison.
Not asking whether the quoted rate requires paying points. A very low advertised rate sometimes assumes you're buying discount points -- confirm the par rate (no points) alongside any discounted rate offered.
Frequently Asked Questions
How many loan offers should I compare? At least three -- enough to see the range of pricing available without spending excessive time. Applications within a 45-day window count as one credit inquiry for scoring purposes.
Should I go with my current bank for convenience? Only if their offer is competitive -- your existing relationship has no obligation to give you their best rate, so it's worth comparing regardless.