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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