Loan comparisons become clearer when principal, interest, term, and amortization are kept separate. Each answers a different question about the borrowing agreement.
Principal
Principal is the amount borrowed or the remaining balance on which interest is calculated. Early payments on an amortizing loan often contain more interest because the outstanding principal is larger.
Interest rate
The interest rate is the price of borrowing, expressed annually. The periodic rate used in a payment calculation depends on the agreement's compounding convention and payment frequency.
Term
A term is the period during which specific contractual conditions apply. For a mortgage, the balance may remain at the end of a term and require renewal.
Amortization
Amortization is the planned repayment horizon. Extending it usually lowers each payment but increases the number of interest-bearing periods and therefore total interest.
- Shorter amortization: higher payment, usually less total interest
- Longer amortization: lower payment, usually more total interest
Compare total cost, not payment alone
Multiply the payment by the number of payments, then add fees not already included. The Financial Consumer Agency of Canada recommends understanding total loan cost rather than choosing only by payment size.