Direct answer
Compare loan offers using more than the advertised rate or monthly payment. At minimum, compare the amount financed, term, scheduled payment, setup and service fees, total cash repaid and total borrowing cost. A low monthly payment can be created by extending the term, which may increase total interest.
ToolBullet also calculates an estimated effective annual cost from the complete entered cash flows. This is a comparison metric, not an official or statutory APR.
The fixed-payment formula
For financed principal P, monthly rate i and n payments:
M = P × i ÷ (1 − (1 + i)−n)The stated nominal annual rate is divided by 12. A financed setup fee is added to principal before the payment is calculated. A separately paid setup fee is not added to principal.
How each fee changes the cash flows
| Fee | Payment treatment | Effect on comparison |
|---|---|---|
| Upfront setup fee | Paid separately at the start | Reduces net cash received and raises total borrowing cost |
| Financed setup fee | Added to principal | Raises scheduled payment and interest-bearing principal |
| Monthly service fee | Added to each monthly cash outflow | Raises monthly commitment and annualised cost |
| Final or exit fee | Added to the last payment | Raises final cash outflow and total cost |
Example
A 10,000 loan at a nominal 6% for 36 months with no fees produces a scheduled payment of about 304.22, total interest of about 951.90 and an effective annual rate of approximately 6.17% from monthly compounding.
Now consider a 200 setup fee:
| Treatment | Financed principal | Approx. payment | Total cost effect |
|---|---|---|---|
| No fee | 10,000 | 304.22 | Interest only |
| 200 paid upfront | 10,000 | 304.22 | Net cash received falls to 9,800 |
| 200 financed | 10,200 | About 310.30 | Fee also attracts interest |
The financed and upfront versions can produce similar-looking total costs but different payment and cash-flow timing. That is why the comparison exposes both total cost and annualised cost.
Estimated effective annual cost
ToolBullet starts with a positive time-zero cash flow equal to the required cash amount minus any upfront setup fee. It then adds the negative monthly payments and fees. A bounded solver finds the monthly rate that makes the net present value of those cash flows equal to zero. The monthly rate is compounded for 12 months.
Estimated annual cost = (1 + monthly IRR)12 − 1This method is transparent and useful for comparing the entered offers, but official APR rules differ by product and jurisdiction. The label deliberately avoids claiming regulatory APR.
How to read the results
- Lowest monthly commitment: the smallest scheduled payment plus recurring monthly fee.
- Lowest total borrowing cost: the smallest total cash repaid minus cash received.
- Total fees: setup, recurring and final fees entered.
- Estimated effective annual cost: annualised modelled cash-flow cost.
No single row is universally “best.” A borrower may value a shorter term, lower payment, lower cost or different flexibility. Use official offer documents to verify every fee and condition.