How to compare two offers with different installments
A smaller installment does not mean a lower cost. Compare the total and the rate.
Short answer: compare the total amount you will pay in each offer, the effective interest rate, the term and the extra costs (such as fees and insurance), and check that the installment fits your budget. A smaller installment over a longer term can cost much more in total.
What helps before you start
- The offers in writing, with the amount financed, number of installments, amount of each installment and all fees.
- A calculator or spreadsheet.
- Your up-to-date monthly budget.
Steps
- List each offer's data. Cash or financed amount, down payment, number of installments, installment amount, fees, insurance and charges.
- Calculate the total paid. Down payment plus all installments plus extra costs.
- Calculate the additional cost. Total paid minus the cash price or the amount borrowed. That is the cost of credit.
- Compare interest rates. Ask for the effective rate and, if possible, the total effective cost indicator, which combines interest and charges. It makes comparison easier.
- Compare terms. Longer terms reduce the installment but increase total interest paid.
- Check flexibility. Is it possible to pay down or settle early, with a discount on future interest?
- Test the budget. Does the installment leave room for surprises? In general, avoid committing a very large part of income.
- Consider risk. Variable rates can change the installment amount over time.
An example
Offer A has 12 installments of 520 for an amount of 5,000, a total of 6,240. Offer B has 24 installments of 300, a total of 7,200. B's installment is smaller, but the additional cost is 2,200, against 1,240 for A. If the budget can handle A's installment, it tends to be cheaper in total. If not, B may be the only viable one, and it is worth looking for a third option with an intermediate term. The numbers are illustrative.
Common mistakes
- Looking only at the installment.
- Forgetting fees and insurance: they are part of the cost.
- Not comparing early payment conditions.
- Deciding under pressure: "today only" offers deserve caution.
Next step
Build a table with the two offers and add everything up. This text is educational and does not replace professional advice.
