Cost Of Borrowing Money Calculator With Amortization

Cost Of Borrowing Formula:

\[ \text{Total Cost} = \text{Total Payments} - \text{Principal} \]

Principal Amount:

Annual Interest Rate:

Loan Term:

years

Payment Frequency:

Total Payments:

Total Cost Of Borrowing:

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What Is The Cost Of Borrowing Money?

The cost of borrowing money represents the total interest and fees paid over the life of a loan. It's calculated as the difference between the total amount repaid and the original principal borrowed. Understanding this cost helps borrowers make informed financial decisions.

2. How Does The Calculator Work?

The calculator uses the amortization formula:

\[ \text{Monthly Payment} = P \times \frac{r(1+r)^n}{(1+r)^n-1} \]

Where:

\( P \) — Principal loan amount
\( r \) — Periodic interest rate (annual rate divided by number of payment periods)
\( n \) — Total number of payments

Total Cost Calculation: Total cost is calculated as (Monthly Payment × Number of Payments) - Principal.

3. Importance Of Calculating Borrowing Costs

Details: Understanding the true cost of borrowing helps consumers compare loan offers, make informed financial decisions, and avoid overpaying for credit. It reveals how interest rates and loan terms significantly impact the total amount repaid.

4. Using The Calculator

Tips: Enter the principal amount, annual interest rate, loan term in years, and select payment frequency. Ensure all values are positive numbers with principal > 0, interest rate > 0, and loan term ≥ 1 year.

5. Frequently Asked Questions (FAQ)

Q1: What factors affect the cost of borrowing?
A: The three main factors are the principal amount, interest rate, and loan term. Higher amounts, rates, or longer terms increase borrowing costs.

Q2: How does payment frequency affect total cost?
A: More frequent payments (monthly vs. annually) reduce the total interest paid because principal is reduced more quickly.

Q3: What's the difference between interest rate and APR?
A: APR (Annual Percentage Rate) includes both interest and certain fees, providing a more complete picture of borrowing costs than the interest rate alone.

Q4: Can I reduce my borrowing costs?
A: Yes, by making extra payments, choosing shorter loan terms, negotiating lower rates, or making payments more frequently.

Q5: Are there any costs not included in this calculation?
A: This calculator focuses on interest costs. Additional fees (origination fees, late fees, insurance) may increase the actual cost of borrowing.