Rate isn't cost: how to compare two financing offers honestly

A 9% loan can cost more than a 14% one. Here's the arithmetic most borrowers skip.

Every financing conversation starts with a rate, and almost none of them should. A rate is a per-period price. What you actually pay is a function of price, term, fee structure, and how principal amortizes — and two offers with very different rates can land in very different places once you total the dollars.

Start by converting every offer into one number: total dollars paid over the life of the facility, including origination fees, servicing charges, and any prepayment penalty you're realistically going to trigger. Then compare that total against the cash the capital is expected to produce over the same window.

The second thing to normalize is duration. Longer terms lower the monthly payment and raise the total cost. If the asset you're funding produces its return in eighteen months, financing it over five years means you keep paying for a benefit you already banked.

Finally, ask what happens if you're early. A facility with a declining prepayment discount rewards a good year. One with a fixed factor rate does not — you owe the full amount whether you pay it in month three or month thirty.

The discipline here is simple: total dollars, matched duration, and a documented prepayment outcome. If those three things aren't in writing, you don't have a real offer yet.