What Is the Total Cost of a Loan?
The total cost of a loan is the complete amount you repay over its entire term — your original principal plus every dollar of interest. A loan's headline amount tells you what you borrow today, but the total cost reveals what it actually costs you. This calculator converts a loan amount, annual interest rate and term into a monthly payment and then sums every payment to show the true lifetime cost.
How to Use It
Enter the loan amount (the principal you borrow), the annual interest rate as a percentage, and the loan term in years. The calculator computes the fixed monthly payment for a standard amortizing loan, multiplies it by the number of months, and reports the total cost, total interest, and number of payments.
The Formula Explained
First the monthly payment is found with the amortization formula $$\text{PMT} = P \cdot \frac{i\,(1+i)^{n}}{(1+i)^{n} - 1}$$ where \(P\) is the principal, \(i\) is the monthly interest rate (annual rate \(\div\) 12 \(\div\) 100) and \(n\) is the number of monthly payments (years \(\times\) 12). The total cost is then simply $$\text{Total Cost} = \text{PMT} \times n$$ and the total interest is the total cost minus the principal. If the rate is 0%, the payment is just principal divided by the number of months.
Worked Example
Borrow $20,000 at 5% annual interest over 5 years. The monthly rate is \(0.05/12 \approx 0.0041667\) and \(n = 60\). The payment works out to about $377.42. Multiply by 60 payments to get a total cost of roughly $22,645.48, meaning you pay about $2,645.48 in interest on top of the principal.
FAQ
Does this include fees? No — it covers principal and interest only. Origination fees, insurance or taxes are not included.
What if my loan compounds differently? This uses standard monthly compounding, which matches most consumer loans (auto, personal, mortgages). Loans with different schedules may vary slightly.
How can I lower the total cost? A shorter term or lower rate reduces total interest, even if a shorter term raises the monthly payment.
