Loan Comparison Tool

Loan 1 Amount (₦):

Loan 1 Interest Rate (%):

Loan 1 Term (Years):

Loan 2 Amount (₦):

Loan 2 Interest Rate (%):

Loan 2 Term (Years):

How the Loan Comparison Tool Works

The Loan Comparison Tool is designed to help users easily compare two different loan options based on key financial factors such as monthly repayment amounts and the total cost of the loan. Here’s a detailed explanation of how it works:

1. User Inputs Loan Details

The user inputs the following information for each loan they want to compare:

Loan Amount: The total amount of money they wish to borrow for each loan.
Interest Rate: The annual interest rate charged by the lender for each loan, expressed as a percentage.
Loan Term: The duration over which the user plans to repay the loan, in years.

2. Calculation of Monthly Repayment

For each loan, the tool calculates the monthly repayment amount using the following formula:

$Payments\text{Monthly Repayment} = \frac{\text{Loan Amount} \times \text{Monthly Interest Rate}}{1 – (1 + \text{Monthly Interest Rate})^{-\text{Number of Payments}}}$

Where:

Loan Amount is the total amount borrowed.
Monthly Interest Rate is calculated by dividing the annual interest rate by 12 (since there are 12 months in a year).
Number of Payments is the total number of monthly payments over the loan term, calculated by multiplying the loan term in years by 12.

This calculation determines the fixed amount the user would need to pay each month to fully repay the loan over the specified term.

3. Calculation of Total Loan Cost

The tool then calculates the total cost of each loan by multiplying the monthly repayment by the total number of payments:

$Payments\text{Total Loan Cost} = \text{Monthly Repayment} \times \text{Number of Payments}$

This gives the user an idea of how much they will pay in total over the life of the loan, including both the principal amount and the interest.

4. Displaying the Comparison

Once the calculations are complete, the tool displays a comparison table that shows:

Monthly Repayment: The amount the user would need to pay each month for each loan.
Total Loan Cost: The total amount the user would end up paying over the entire loan term for each loan.

This comparison allows the user to quickly see which loan is more affordable in terms of monthly payments and total cost.

5. Example Scenario

Imagine a user wants to compare two loan offers:

Loan 1:
- Amount: ₦1,000,000
- Interest Rate: 5%
- Term: 5 years
Loan 2:
- Amount: ₦1,000,000
- Interest Rate: 7%
- Term: 5 years

For Loan 1:

Monthly Repayment: ₦18,870.41
Total Loan Cost: ₦1,132,224.82

For Loan 2:

Monthly Repayment: ₦19,801.17
Total Loan Cost: ₦1,188,070.20

In this example, Loan 1 would be more affordable both in terms of monthly payments and total cost.

Conclusion

The Loan Comparison Tool is a simple yet powerful way for users to evaluate different loan options. By comparing key financial factors such as monthly repayments and total costs, users can make informed decisions about which loan is best suited to their financial situation.