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Total Cost = Sum of Payments - Principal
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The Cost To Borrow Money Calculator With Amortization calculates the total cost of borrowing by subtracting the principal amount from the sum of all payments made over the loan term. It helps borrowers understand the true cost of credit.
The calculator uses the formula:
Where:
Explanation: This calculation reveals the actual interest and fees paid over the life of the loan, providing a clear picture of borrowing costs.
Details: Understanding the total cost of borrowing is essential for financial planning, loan comparison, and making informed credit decisions. It helps borrowers evaluate the true expense of different loan options.
Tips: Enter the principal amount and total payments in currency units. Both values must be positive numbers to calculate the borrowing cost accurately.
Q1: What does "Total Cost" represent?
A: Total cost represents the actual amount paid in interest and fees over the entire loan term, beyond the original principal amount.
Q2: How is this different from interest rate?
A: While interest rate shows the percentage cost, total cost shows the actual monetary amount you'll pay, providing a more tangible understanding of borrowing expenses.
Q3: Does this include all loan fees?
A: Yes, if the payments value includes all costs (interest, fees, and principal), the calculation will reflect the complete borrowing cost.
Q4: Why is amortization important in this calculation?
A: Amortization ensures that payments are properly allocated between principal and interest, providing an accurate total cost calculation over time.
Q5: Can this calculator be used for different types of loans?
A: Yes, it works for mortgages, car loans, personal loans, and any other amortized loan where you know the total payments and principal amount.