The rate is not the cost
Two lenders quote you 11% and 12%. The first charges a 5% origination fee and the second charges nothing. The first loan is the more expensive one, and the advertised rates give you no way to see that.
Comparing loans means getting them onto a single number that includes everything, and that number is almost never the one on the poster.
What an origination fee actually does
An origination fee is deducted from what you receive, not added to what you repay. Borrow $15,000 at 11% over five years with a 5% fee and $750 is taken off the top — so $14,250 arrives in your account.
You still repay interest on the full $15,000, and the payment is still $326.14 a month. The total repaid is $19,568.18. What has changed is the denominator: you are paying that on $14,250 of usable money, which works out at an effective rate of 13.26% rather than the 11% quoted.
Two and a quarter points of difference is not a detail. It is enough to reverse the ranking of most competing offers, which is precisely why fees are quoted separately from rates.
Borrowed $15,000 at 11% over 5 years, 5% fee
Received $14,250.00
Payment $326.14 a month
Repaid $19,568.18 ($4,568.18 interest)
Effective rate 13.26%, not 11%
Work it out: Personal Loan Calculator →
The quoted rate is rarely the rate you get
Advertised rates on unsecured borrowing are almost always "representative" — they have to be offered to some proportion of successful applicants, and everyone else gets something higher. The rate is set by your credit standing, and you do not find out what yours is until you apply.
That makes shopping by advertised rate close to useless. What is worth doing is getting actual quotes, ideally through soft searches that do not mark your file, and comparing those.
It also means a rate difference of half a point between two adverts tells you nothing at all about which lender will be cheaper for you specifically.
Secured borrowing is a different bargain
A car loan is secured on the car and a mortgage on the house, which is why both carry much lower rates than an unsecured personal loan. The lender has recourse to something, so it is taking less risk and charges less for it.
The thing being traded away is optionality. On unsecured debt the worst case is a damaged credit file and a difficult conversation; on secured debt the worst case is losing the asset. That is a genuine difference in kind, not just in price.
It also shapes term. A car loan run over seven years to reach an affordable payment can easily leave you owing more than the car is worth for most of the term, because the car depreciates faster than the balance falls. The payment looks manageable and the position is not.
Work it out: Car Loan Calculator →
Affordability runs the arithmetic backwards
Most people approach a loan from the wrong end — they pick something they want and ask whether the payment is manageable. Running it the other way is more useful: start from the monthly figure you are comfortable with and see what it borrows.
The difference is not psychological. Working forwards from a purchase price makes the term the free variable, and stretching the term is exactly how a payment gets made to fit. Working backwards from a payment makes the price the free variable, which is the one you actually control.
It also surfaces the deposit properly. Money down reduces the amount borrowed pound for pound, and on secured borrowing it often improves the rate as well, so it does two things at once.
Work it out: Car Affordability Calculator →
Questions
What is an origination fee?
A charge deducted from the loan before you receive it. Borrow $15,000 with a 5% fee and $14,250 arrives — but you repay interest on the full $15,000, which is why the effective rate is higher than the quoted one.
How do I compare two loans with different fees?
Work out the effective rate for each: the rate that produces the same payments from the amount you actually receive. A lower headline rate with a large fee is frequently the worse deal.
Why is the rate I was offered higher than the advert?
Advertised rates on unsecured borrowing are representative — a lender only has to give them to a proportion of accepted applicants. Yours depends on your credit standing, and you will not know it until you apply.
Why are car loans cheaper than personal loans?
Because they are secured on the car. The lender can recover the asset, so it takes less risk and charges less — at the cost of your losing the car if things go wrong.
Is a longer loan term bad?
It lowers the payment and raises the total, and on a depreciating asset it can leave you owing more than the thing is worth for years. That negative equity is the real cost of stretching a term, not the extra interest.
Should I put down a bigger deposit?
On secured borrowing it does two things: it reduces the amount borrowed directly, and it often improves the rate as well. Both effects run in the same direction.