A Financing Cost Calculator helps you understand the true total cost of borrowing money. It shows how much interest you will pay over the life of a loan, how much you will repay in total, and helps compare loan offers. This tool is part of the Loan and Debt Management Tools category.
Formula of Financing Cost Calculator
1. Total Financing Cost (Simple Interest)
Total Financing Cost = Principal × Interest Rate × Loan Term
Where:
- Principal is the amount borrowed.
- Interest Rate is the annual rate as a decimal (for example, 5% is 0.05).
- Loan Term is the loan duration in years.
2. Total Repayment Amount
Total Repayment = Principal + Total Financing Cost
Combined, this is:
Total Repayment = Principal + (Principal × Interest Rate × Loan Term)
3. Installment Loan (with Monthly Payments)
For loans with equal monthly payments:
Monthly Payment = [Principal × r × (1 + r)^n] ÷ [(1 + r)^n − 1]
Then,
Total Financing Cost = (Monthly Payment × n) − Principal
Where:
- r is the monthly interest rate (annual rate divided by 12)
- n is the total number of monthly payments (loan term in years times 12)
Reference Table
| Loan Amount | Interest Rate | Loan Term | Estimated Total Interest |
|---|---|---|---|
| $5,000 | 5% per year | 3 years | About $750 (simple interest) |
| $10,000 | 7% per year | 5 years | About $3,500 (monthly payments) |
| $20,000 | 4% per year | 4 years | About $1,600 (simple interest) |
This gives a quick reference for planning, but always use the calculator for precise figures.
Example of Financing Cost Calculator
Suppose you borrow $8,000 at 6% interest for 4 years.
Step 1: Calculate total interest with simple interest
$8,000 × 0.06 × 4 = $1,920
Step 2: Total repayment
$8,000 + $1,920 = $9,920
You will pay back $9,920 in total, with $1,920 being the cost of borrowing.
Most Common FAQs
It helps you see the real amount you have to repay and compare different loans easily. This avoids surprises and helps you choose the best deal.
Not exactly. APR usually includes other charges and fees besides interest. The financing cost here focuses mainly on the interest cost for clarity.
You can lower it by borrowing a smaller amount, choosing a shorter repayment period, or finding a loan with a lower interest rate.