Loan Calculator: The Total Cost of Borrowing Is Not the Interest Rate
Loan marketing leads with the interest rate. The interest rate is the least complete way to describe the cost of a loan.
The complete picture requires three things: the rate, the fees, and the term — because the same rate on different terms produces dramatically different total costs.
APR vs. Interest Rate
The Annual Percentage Rate (APR) attempts to express total loan cost as a single annual number by including fees alongside the interest rate. A 7% mortgage with $5,000 in origination fees has a higher APR than a 7% mortgage with $2,000 in origination fees.
APR is more honest than the interest rate alone — but it's still an imperfect measure, especially for loans you'll pay off early.
Term Is as Important as Rate
A $20,000 loan at 6% for 36 months: monthly payment $608, total interest $1,897.
The same loan at 6% for 60 months: monthly payment $387, total interest $3,199.
Lower monthly payment, $1,302 more in total interest. The "more affordable" option costs 69% more in interest.
When to Pay Extra
On a simple-interest loan (most personal loans and mortgages), extra payments directly reduce principal, which reduces the amount future interest is calculated on. An extra $100/month on a 30-year $350,000 mortgage at 6.5% pays it off 6 years early and saves $82,000 in interest.
Our loan calculator shows total interest, payoff timeline, amortization schedule, and the impact of extra payments.
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Frequently Asked Questions
Why does extending my loan term from 36 to 60 months cost so much more in interest?
Longer terms mean more monthly payments, and each payment includes interest charges. For example, a $20,000 loan at 6% costs $1,897 in total interest over 36 months but $3,199 over 60 months—that's $1,302 more even though the interest rate is identical. The lower monthly payment comes at a 69% premium in total interest paid.
How much will an extra monthly payment actually save me on my mortgage?
Extra payments directly reduce your principal balance on simple-interest loans like mortgages, which means less future interest accrues. Even modest extra payments add up significantly—an extra $100/month on a 30-year $350,000 mortgage at 6.5% will pay off the loan 6 years early and save $82,000 in interest. Use the calculator's extra payment feature to see the exact impact for your specific loan.
Should I focus on the interest rate or the APR when comparing loans?
APR is more honest because it includes both the interest rate and fees, giving you a truer picture of total cost. However, APR isn't perfect—it's calculated assuming you'll keep the loan for the full term. If you plan to pay off a loan early or refinance, the interest rate and fees matter more than APR since you won't pay interest for the full period.
Can I use this calculator to compare loans with different interest rates and terms?
Yes—that's the core purpose of the calculator. Enter the loan amount, interest rate, and term for each loan option to see the monthly payment, total interest, and complete amortization schedule. This lets you directly compare how different combinations of rates and terms affect your total borrowing cost, not just the monthly payment.
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