The whole story, as text
Is a 12% loan with a fee cheaper than a 14% loan with none?
12% with a 5% fee, or 14% with no fee? Two offers for the same $10,000 in hand, repaid over 36 months. The lower rate looks like the better deal. How much more does the 12% loan cost over the three years?
The answer
$283. The lower rate loses. Cost of borrowing: $2,586 with the fee against $2,304 without.
Why
The fee is charged in full on day one. The rate advantage needs years to catch up. Over three years each 1% of fee is worth about three-quarters of a point of rate. The shorter the loan, the more a fee costs. Paid off at month 12: The fee loan has cost $1,623. The no-fee loan, $1,220.
One move
Start with the APR, which brings this fee into the rate. 12% + 5% fee: 15.61% estimated APR, $2,586 cost of borrowing. 14%, no fee: 14% estimated APR, $2,304 cost of borrowing. The no-fee offer costs $283 less and has the lower payment too: $342 against $350. Over a long enough term the fee loan could win. Over three years, on these numbers, it does not.
The tool compares up to four offers on identical cash in hand and shows the cost of leaving early at months 6, 12 and 24.
Yours
Which offer really costs less? runs these numbers for any loan. Nothing you enter leaves your browser.
The longer read
Two offers for the same need. One says 12% with a 5% origination fee. The other says 14% with no fee. The lower rate looks like the better deal, and over a long enough term it might be. Over three years, on these numbers, it is not.
The short answer
Put both offers on the same footing: the cash that actually reaches you. Then compare the total you pay back. The fee is money you borrow and pay interest on, so it behaves like a higher rate spread over the term. The shorter the loan, the more a fee hurts, because there are fewer months to spread it across.
A worked example
You need $10,000.00 in hand, repaid over 36 months.
| Line | Offer A: 12% with a 5% fee | Offer B: 14%, no fee |
|---|---|---|
| Amount on the note | $10,526.32 | $10,000.00 |
| Cash you receive | $10,000.00 | $10,000.00 |
| Monthly payment | $349.62 | $341.78 |
| Estimated APR | 15.61% | 14.00% |
| Cost if paid off at month 12 | $1,622.70 | $1,219.75 |
| Total cost of borrowing | $2,586.48 | $2,303.95 |
Offer B costs $282.53 less over the full term, and its payment is lower too. The gap is widest if you pay off early: at month 12, Offer A has cost $403 more, because the whole fee was charged on day one while the rate advantage has had only a year to work.
Stretch the term and the answer can change. Over 60 months the same fee is spread across more payments and the two-point rate difference has longer to matter. That is why the comparison has to be run on your term, not a rule of thumb.
What decides it
- Fee size against rate gap. On this three-year loan the 5% fee lifted the APR by 3.61 points, so each 1% of fee is worth about three-quarters of a point of rate. The shorter the loan, the more each point of fee is worth.
- Term. Fees hurt short loans most.
- When you will pay it off. Early payoff makes the fee loan worse, since the fee is never refunded but the interest saving never accrues.
- How the fee is charged. Deducted or added to the balance, it is still borrowed money.
Questions to ask your lender
- What is the APR for this offer, including all fees?
- If I pay off after one year, what will I have paid in total?
- Is the fee refundable in any case?
- Would you offer the same rate without the fee, at a different rate?
See it with your own numbers
Enter up to four offers in Which offer really costs less?. It compares them on the same cash in hand, shows the cost at months 6, 12 and 24, and says which one wins on your term.
Related: Equal-cash comparison and estimated APR. Glossary: APR, early-exit cost.
Educational tool, not advice. Your lender’s disclosures are the authoritative figures.
Written and reviewed by Riverbend Crossroads Digital LLC, Sunday, September 6, 2026. Figures from the Show Real Cost engine, computed exactly and shown to the cent. Educational, not advice; your lender's disclosures are the authoritative figures. How we calculate · Corrections.