How to Compare the Total Cost of Business Finance (Not Just the Rate)

It's tempting to compare business finance offers on interest rate alone. But two loans with the same headline rate can cost genuinely different amounts once fees, term, balloon and exit conditions are taken into account. Here's how to compare properly - with a worked example.

The five things that actually make up total cost

• Interest rate. The starting point, but only one part of the picture.
• Fees. Establishment fees, monthly or annual account fees, and PPSR registration fees are common on business and equipment finance.
• Term. A longer term usually means lower monthly repayments but more interest paid overall.
• Balloon or residual. A lump sum left owing at the end of the term - it lowers repayments now but has to be dealt with later.
• Exit conditions. What it costs to pay the loan out early, if your circumstances change.

Our guide to APR vs interest rate vs comparison rate covers how these terms differ; this article is about pulling them together into one comparison.

A worked example

The figures below are illustrative only, to show how the comparison works - not a real offer or quote. Every application is assessed on its own terms.

Say a business is comparing two equipment finance offers for an $80,000 asset, both over a 5-year term:

Option A has the lower headline rate and a lower monthly repayment - on rate alone, it looks like the obvious choice. But add in the establishment fee, ongoing account fees and, most significantly, the $16,000 balloon still owing at the end of the term, and the real picture changes. Option B has a slightly higher rate but no fees and nothing left to refinance, pay out or trade the asset against when the term ends.

Neither option is automatically "better" - it depends on whether the business would rather have lower repayments now and deal with the balloon later, or pay it off in full over the term. That's a cash flow decision as much as a cost decision, which is exactly why the comparison needs to go beyond the rate.

Questions worth asking about any offer

• What fees apply, and when are they charged?
• Is there a balloon or residual, and how much?
• What happens to the balloon at the end of the term?
• Is there a cost to pay the loan out or refinance early?
• Does the comparison rate use the same loan amount and term I'm actually asking for?

You can get an indicative sense of repayments for your own numbers using loan-o's business loan repayment calculator before comparing lender offers in detail. If cost is being weighed alongside cash flow timing - for example around seasonal income - our article on how seasonal cash flow shapes the right finance is a useful next read.

The takeaway

The lowest interest rate isn't always the lowest total cost, and the lowest total cost isn't always the right structure for your business. Comparing rate, fees, term, balloon and exit conditions together - not the rate on its own - is what actually tells you what a loan will cost, and whether it fits the way your business operates.

This article contains general information only and does not take into account your individual objectives, financial situation or needs. It is not financial, tax, legal or credit advice. The worked example uses illustrative figures only and is not an offer or quote. Finance is subject to lender approval, lending criteria, terms, conditions, fees and charges, which vary between lenders and can change.

Last reviewed: 29 September 2026. Credit Representative (broker): Guy Beglin, No. 550800. Corporate Credit Representative: B.K Brokers Pty Ltd (ABN 40 669 144 218) t/a loan-o, No. 550800, of COG Compliance Services Pty Ltd, Australian Credit Licence 384428. Suite 1.01, 303 Coronation Drive, Milton, Queensland 4064. Email [email protected]. Tel 1300 156 266. loan-o is a finance broker, not a lender.