Why the lowest rate isn't always the cheapest loan
6.99% sounds better than 7.49%. But add a $15 monthly fee and the lower rate can cost you more. Here's how to compare loans properly.
By Hayden Gemmill, Fund 360 · 7 October 2026
It's natural to shop on the interest rate. It's the number every ad leads with. But the rate is only part of what a loan costs you. Monthly account fees, establishment fees and other charges can make a loan with a lower rate more expensive overall.
A real example
Two lenders offer the same $50,000 loan over 5 years. Lender A has the lower rate of 6.99%, but charges a $15 monthly account fee. Lender B charges 7.49% with no monthly fee.
| Lender A | Lender B | |
|---|---|---|
| Interest rate | 6.99% | 7.49% |
| Monthly account fee | $15 | None |
| Monthly cost | $1,004.82 | $1,001.66 |
| Total over 5 years | $60,289 | $60,100 |
The loan with the lower rate ends up costing about $190 more. On this loan, a $15 monthly fee is roughly the same as adding over half a percent to the rate.
What to compare instead
- The comparison rate, which rolls most fees and charges into one figure so loans are easier to compare.
- Monthly or annual account fees.
- Establishment or application fees, which are often added to the loan.
- Early payout or break fees, in case you sell or refinance before the end.
- Whether there's a balloon, and how big it is.
- The total you'll repay over the life of the loan, not just the repayment amount.
Watch for the headline rate
Advertised rates are often the best rate a lender offers, for the strongest applicants and newest vehicles. The rate you're actually offered depends on your situation, the asset and the loan, so compare the full offer you're given, not the ad.
The figures above are examples only, to show how fees change the cost of a loan. They're not rates we're offering.
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This guide is general information only and doesn't take into account your objectives, financial situation or needs. It isn't financial, tax or legal advice. Talk to us about your situation, and to your accountant about tax.